<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-K/A

(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

                                       or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 [No fee required] for the transition period from
         _______ to _______.

         Commission file number    0-18205
                                -------------

                           OEC COMPRESSION CORPORATION
                         -------------------------------
                         (Name of Issuer in its charter)

        OKLAHOMA                                             73-1345732
------------------------                                 ------------------
(State of Incorporation)                                 (I.R.S. Employer)
                                                         Identification No.

2501 CEDAR SPRINGS ROAD, SUITE 600, DALLAS, TX                      75201
--------------------------------------------------------------------------------
   (Address of principal executive offices)                      (Zip Code)

Issuer's telephone number, including area code                    214-953-9560
                                                                  ------------

        Securities registered pursuant to Section 12(b) of the Act: None
      Securities registered pursuant to Section 12(g) of the Exchange Act:

            Title of Class                                 Name of Exchange
            --------------                                 ----------------
 Common Stock, par value $.01 per share                American Stock Exchange

         Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes   X     No
    -----     -----

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

      Issuer's revenue for the year ended December 31, 1999 -- $25,157,000

          Aggregate Market Value of Voting Stock held by Non-affiliates
                         on May 10, 2000 -- $8,194,993

                  Number of Shares of Common Stock Outstanding
                          on May 10, 2000 - 29,121,211

                       DOCUMENTS INCORPORATED BY REFERENCE

1.       Portions of the Issuer's Proxy Statement with respect to Annual Meeting
         of Stockholders to be scheduled is incorporated by reference in Part
         III of the Form 10-K



Transitional Small Business Issuer Disclosure Format (Check one): Yes [ ] No [X]


<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                                       PAGE

                                     PART I
<S>              <C>                                                                                                   <C>
Items 1. & 2.    Description of Business and Properties..........................................................         3

Item  3.         Legal Proceedings...............................................................................         8

Item  4.         Submission of Matters to a Vote of Security Holders ............................................         8

Item  4A.        Executive Officers of the Registrant............................................................         8

                                     PART II

Item  5.         Market for Registrant's Common Equity and Related
                   Stockholder Matters ..........................................................................         9

Item  6.         Selected Financial Data.........................................................................         9

Item  7.         Management's Discussion and Analysis of Financial
                   Condition and Results of Operations...........................................................       10

Item  7A.        Quantitative and Qualitative Disclosures about Market Risk .....................................       13

Item  8.         Financial Statements and Supplementary Data.....................................................       14

Item  9.         Changes in and Disagreements with Accountants on Accounting
                   and Financial Disclosure......................................................................       14

                                    PART III

Item 10.         Directors and Executive Officers  of the Registrant.............................................       15

Item 11.         Executive Compensation..........................................................................       18

Item 12.         Security Ownership of Certain Beneficial Owners
                   and Management................................................................................       19

Item 13.         Certain Relationships and Related Transactions..................................................       21

Item 14.         Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................       23

Signatures       ................................................................................................       24

Index to Consolidated Financial Statements.......................................................................       25
</TABLE>

                                       2
<PAGE>

                           OEC COMPRESSION CORPORATION
                                  ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                                     PART I

ITEMS 1. AND 2.  DESCRIPTION OF BUSINESS AND PROPERTIES

GENERAL

         OEC Compression Corporation, formerly Equity Compression Services
Corporation, formerly Hawkins Energy Corporation (the "Company") is engaged
in the leasing, contract management, outsourcing, remanufacturing and direct
sale of gas compression equipment to operators of producing natural gas wells
and gas gathering systems. Its principal geographical operating areas lie
within the states of Alabama, Mississippi, Louisiana, Oklahoma, Arkansas,
Kansas, New Mexico and Texas.

         The Company was incorporated as Hawkins Energy Corporation in the
state of Oklahoma in June 1989 for the purpose of consolidating the
businesses and assets of Equity Compressors, Inc. ("Equity Compressors") and
ten Hawkins Exploration oil and gas limited partnerships (the "Hawkins
Limited Partnerships"). To effect the consolidation, the Company extended an
exchange offer to the stockholders of Equity Compressors and the partners of
the Hawkins Limited Partnerships. Following approval by a majority in
interest of the limited partners in each of the Hawkins Limited Partnerships,
the Company acquired the assets and assumed the liabilities of the Hawkins
Limited Partnerships and acquired the stock of Equity Compressors, all in
exchange for common stock of the Company, and commenced operations on
December 29, 1989.

         The Company acquired Equity Compressors when its sole business was
the leasing of gas compression equipment to operators. Equity Compressors
broadened its scope of operations through its acquisition in April 1990 of a
compressor remanufacturing and service business. The business of the acquired
company centered around the acquisition, remanufacture and sale of existing
gas compressor units. By May 1990, this business was fully integrated into
Equity Compressors.

         In June 1993, the Company acquired Mid-South Compressors, Inc., a
privately held gas compression company ("Mid-South"). Mid-South leased
compression equipment throughout the gas-producing regions of Mississippi,
Alabama and Northern Louisiana. The transaction involved the issuance of
approximately 5.4 million shares of Company common stock and the payment of
$1.4 million in cash to Mid-South. The Company financed the cash portion of
the acquisition through additional borrowings.

         In July 1993, the Company acquired all the outstanding shares of
common stock of Owens Compression Service, Inc. ("Owens"), a privately held
company that provided gas compression services primarily in East Texas and
North Louisiana in exchange for cash consideration of $42,000 and
approximately 3.2 million shares of Company common stock.

         During March 1995, the Boards of Directors of Equity Compressors,
Mid-South and Owens each approved the formal merger of Mid-South and Owens
with and into Equity Compressors. The companies merged their operations under
the Equity Compressors name as of January 1, 1995. The businesses of Equity
Compressors included leasing, direct sales and remanufacturing services of
various types of gas compression equipment.

         During December 1996, the shareholders of the Company approved an
increase in the number of authorized shares of common stock enabling the
Company to sell 8 million shares of common stock and 8 million contingent
warrants for a total cash consideration of $4.4 million to HACL, Ltd., a
Dallas-based investment group. Additionally, shareholders voted to change the
name of the Company to Equity Compression Services Corporation.

         On August 6, 1997, the Company acquired 100% of the common stock of
Ouachita Energy Corporation ("Ouachita") and the majority of the assets of
Ouachita Compression Group, LLC and Ouachita Energy Partners, LTD. Under the
terms of the acquisition agreements that were closed effective July 31, 1997,
the Company issued to the shareholders 7.6 million shares of the Company's
common stock and paid approximately $24 million in cash and assumption of
debt.

         On October 30, 1997, the Company, through its wholly owned
subsidiary, Sunterra Energy Corporation, entered into a venture with Prize
Petroleum, L.L.C. ("Prize") of Tulsa, Oklahoma, to form Sunterra Petroleum
Company, L.L.C. ("Sunterra L.L.C."). Sunterra L.L.C. was initially
capitalized with oil and gas properties and cash commitments with a value in
excess of $9 million.

         On December 31, 1997, the Company closed its shop facilities in
Oklahoma City, Oklahoma, Kilgore, Texas, and Columbia, Mississippi. The
acquisition of Ouachita enabled the Company to consolidate the facilities
operations into one state-of-the-art facility located in West Monroe,
Louisiana. Although significant costs were incurred as a result of the
closing of these facilities in the fourth quarter of 1997, the consolidation
of the shop facilities allowed the Company greater control over product

                                       3
<PAGE>
engineering and design, better quality equipment, more reliable service and
increased control over expenses at the facility level.

         On March 6, 1998, the Company merged Equity Compressors into
Ouachita. At December 31, 1999, the combined compressor fleet had 854 gas
compression units with a total of approximately 229,000 horsepower.

         In March 1998, the number of authorized shares of common stock was
increased and the name of the Company changed to OEC Compression Corporation.

         At December 31, 1998, Sunterra L.L.C.'s oil and gas properties were
estimated to have proved reserves of 12,720,000 thousand cubic feet ("mcf")
of natural gas and 163,000 barrels of oil. Natural gas reserves constituted
approximately 93% of the Company's reserve base on a "gas equivalent" basis
(converting each barrel of oil to six mcf of natural gas).

         On July 2, 1999, Sunterra sold 100% of its interest in Sunterra
L.L.C. to Prize. Sunterra received $1 million in cash and the Will-O-Mills
gas treating plant located in southwest Texas. The Will-O-Mills gas treating
plant is a 300 gpm amine plant, which extracts carbon dioxide, and minor
amounts of hydrogen sulfide from natural gas flowed to the plant by area
producers under long-term treating contracts. The Sunterra L.L.C sale
effectively removed the Company from the oil and gas production business.

         The primary business plan of the Company is growth within the
compression service sector of the natural gas industry. The Company plans to
extend its activities in the compression service sector by expanding its
customer base and its business with existing customers by providing the
highest quality compression services. Additionally, the Company will pursue
the purchase of customer owned compressors as well as the purchase of
competitors.

         The Company had 118 employees at year-end 1999. Its principal
executive offices are maintained at 2501 Cedar Springs Road, Suite 600,
Dallas, Texas 75201. The Company's telephone number is (214) 953-9560.

GAS COMPRESSION OPERATIONS

         GENERAL. The Company conducts its compressor operations through
Ouachita Energy Corporation, its wholly owned subsidiary located in West
Monroe, Louisiana.

         The age of a gas well usually affects its need for compression. A
gas well has a natural flowing pressure which may or may not be adequate to
overcome the pipeline pressure at the point where the gas is introduced into
a gathering system or transmission pipeline. If the flowing pressure of the
gas is not adequate to overcome the pipeline pressure, it is not physically
possible to produce or transport the gas without the aid of compression. Gas
compression is used to overcome this problem by boosting the flowing pressure
of the gas. Theoretically, all gas wells will eventually need compression to
boost natural well flowing pressure to exceed pipeline pressure.
Historically, gas compressors have generally been purchased and operated by
gas producers and gas transporters. However, over the last several years,
these same groups have also used equipment leasing and contract compression
services as an accepted means of providing for their gas compression needs.

         EQUIPMENT LEASING AND CONTRACT COMPRESSION SERVICES. At year-end
1999, the Company's service fleet included 854 compressors located in
Alabama, Arkansas, Kansas, Louisiana, Mississippi, Oklahoma, New Mexico and
Texas. These compressors average 268 horsepower in size and their cost as a
new unit of similar size averages about $230,000. The Company's rental fleet
is comprised mostly of used, remanufactured equipment, which was acquired at
a substantial discount to the cost of comparable new compressor units. The
fleet includes engines and compressors of various manufacturers.

         Prior to the Ouachita acquisition in the third quarter of fiscal
year 1997, the Company's core business was compression
rental-with-maintenance to natural gas producers, processors and pipelines.
With the Ouachita acquisition, the Company commenced providing full contract
compression services, which is the complete "outsourcing" of a client's
compression operations to the Company.

         The size and configuration of each compressor varies depending on
the particular application for which it is utilized. Consideration is given
to the differential between the wellhead and pipeline flowing pressures and
the volumes of gas delivered from the wellhead.

                                       4
<PAGE>

         The following table sets forth certain data concerning the Company's
activity in the acquisition and leasing of compressors:

<TABLE>
<CAPTION>

                                                                                DECEMBER 31,
                                                                   1999             1998              1997
                                                                   ----             ----              ----
<S>                                                             <C>              <C>               <C>
Number of units                                                     854              843               669
Horsepower utilization rate at end of period                        72%              79%               80%
Equipment  horsepower at end of period                          228,903          217,663           169,229
</TABLE>

         LEASE/CONTRACT COMPRESSION TERMS. Generally, the Company's
compressors are leased for contract compression services, which are provided
to well operators under written agreements for periods ranging from
month-to-month to six years. These contracts are sometimes renewed at the end
of the specified term at which time the rentals and other terms may be
renegotiated. The competitive marketplace determines the rental/contract
rates used in new contracts and in renewals of existing contracts. Once the
minimum term has expired, the equipment continues on a month-to-month basis,
with either party having the right to terminate the contract by giving a
30-day written notice. The majority of the deployed compressors at December
31, 1999 were leased on a month-to-month basis.

         Under the typical rental-with-maintenance lease, the lessee pays the
costs of transporting the compressor to the well site, installation, all fuel
and other operating costs. The compressors are operated on a daily basis by
the employees of the lessee. The Company maintains service departments which
employ skilled compressor mechanics who service and maintain compression
equipment. Under the most common type of lease, the lessee pays a flat fee
for monthly compression inclusive of service, equipment rental, lubricants
and all parts and maintenance. Under the typical contract compression service
contract, the Company provides the customer with both the compression
equipment and operates that equipment for the customer. The Company's
personnel are responsible for both day-to-day operation and maintenance of
the provided compression equipment for a monthly service fee. Revenues
associated with contracts for rental-with-maintenance and contract
compression services are recognized on the first day of the month in which
the service is provided.

         REMANUFACTURING SERVICES. Remanufacturing services involve the
overhaul and rework of equipment owned by third parties. These services are
performed under contract with numerous customers, including gas gathering and
transmission companies, major oil companies, large independents and small
producers to overhaul and rework their gas compression equipment. Generally,
the Company prepares a description of the work to be conducted and the parts
to be provided. An estimate or a fixed bid of the costs to be charged to the
customer for the overhaul work accompanies this description. In the event
additional labor or parts are required once the work is in process, the owner
of the unit is contacted regarding the work and additional charges are then
agreed on. Overhaul work is normally guaranteed for a period of 90 days.

         COMPRESSOR SALES. The Company is also involved in the direct sales
of remanufactured gas compression equipment. The Company acquires, rebuilds
and sells previously owned gas compressor units to gas producers and
transporters. The Company maintains an inventory of compression parts and
equipment at its facility in West Monroe, Louisiana. The Company is able to
sell its remanufactured equipment at a discount to the cost of comparable new
equipment, and in most cases is able to customize and complete a compressor
unit for a customer in substantially less time than the same customer could
acquire the equipment new from the original manufacturer. The Company, via
its field mechanics, is responsible for the service and maintenance of its
direct sales units during their 90-day warranty period.

         MARKET AND CUSTOMERS. The Company's customer base consists of over
180 U.S. companies engaged in all aspects of the oil and gas industry
including major integrated oil and gas companies, large and small independent
producers, natural gas processors, gatherers and pipelines. No individual
customer accounted for more than 10% of the Company's consolidated revenues
during 1998 or 1999.

         COMPETITION. The natural gas compression services business is highly
competitive. Overall, the Company faces competition from companies with
considerably greater financial resources as well as from several smaller
companies on a more regional basis. The Company believes it is the sixth
largest compressor services company, defined by total horsepower, in the
onshore domestic markets in which it operates.

                                       5

<PAGE>

         Increased size and geographic breadth offer compressor services
companies' significant advantages. Supporting staff costs (i.e. sales,
accounting, engineering) do not rise proportionately with increases in the
number of deployed compressors. As a result, companies the size of the
Company or larger benefit from lower overall operating costs than competing
smaller companies.

         The Company believes it competes effectively on the basis of price
as well as the quality and reliability of service in the geographic markets
it operates (Alabama, Mississippi, Louisiana, Arkansas, Oklahoma, Kansas,
Texas and New Mexico).

COMPLIANCE WITH ENVIRONMENTAL LAWS

         The design and operation of gas compressors is subject to certain
federal and state environmental laws and regulations which, directly or
indirectly, relate to the discharge of materials into the environment.
Complete compliance with all of such laws and regulations may affect the
Company's operations and costs as a result of their effect on the design,
condition and operation of its gas compressors or its costs of repairing or
remanufacturing them. Under most of the leases for the gas compressors,
responsibility for compliance with the majority of these laws and regulations
is placed on the lessee. However, there can be no assurance that the Company
would not be liable for any penalties or fines that may be imposed as a
result of any material noncompliance. It is not anticipated that the Company
will be required in the near future to expend amounts that are material in
the aggregate to the Company's overall operations by reason of such laws and
regulations.

NATURAL GAS AND OIL OPERATIONS

         GENERAL. The Company acquired interests in natural gas and oil
properties by acquiring the assets and assuming the liabilities of ten oil
and gas limited partnerships on December 29, 1989, as a result of the
exchange offer.

         On July 2, 1999, Sunterra sold 100% of its interest in Sunterra
L.L.C. to the Prize Petroleum. Sunterra received $1 million in cash and a
100% ownership interest in the Will-O-Mills gas treating plant located in
southwest Texas. The Will-O-Mills gas treating plant is a 300 gpm amine
plant, which extracts carbon dioxide, and minor amounts of hydrogen sulfide
from natural gas flowed to the plant by area producers under long term
treating contracts. The Sunterra L.L.C sale effectively removed the Company
from the oil and gas production business.

         SIGNIFICANT PROPERTIES. At December 31, 1998, the Company owned oil
and gas interests in 152 producing wells, undrilled leasehold interests and
related assets located in Arkansas, Kansas, Oklahoma and Texas. Exploration
and development efforts have been concentrated in the Anadarko and Arkoma
Basins located in the states listed above. As of December 31, 1999, the
Company owned no producing wells.

         DRILLING ACTIVITIES. During the periods indicated, the Company
participated in the drilling of the following development wells:

<TABLE>
<CAPTION>

                               JUNE 30, 1999    DECEMBER 31, 1998   DECEMBER 31, 1997
                               -------------    -----------------   -----------------
                               GROSS     NET      GROSS      NET      GROSS     NET
                               -----   -------   -------   -------   -------   ------
<S>                            <C>     <C>       <C>       <C>       <C>       <C>
Development
Productive                      --        --         3.0      1.53      3.0       1.40
Non-Productive                  --        --         2.0      1.03      1.0        .11
                             -------   -------   -------   -------   -------   -------
Total                           --        --         5.0      2.56      4.0       1.51
</TABLE>

         MARKET FOR OIL AND GAS. The market for oil and gas production
depends upon a number of factors, including the availability of other
domestic production, crude oil imports, the proximity and size of oil and gas
pipelines, the marketing of competitive fuels and general fluctuations in the
supply and demand for oil and gas. For the past several years, there has
existed a surplus of imported oil and domestic natural gas. In addition, such
oversupplies may cause delays in marketing the natural gas from producing
wells.

         While certain of the Company's natural gas production is sold at the
wellhead to intrastate and interstate pipelines under contracts with terms
ranging from one to twenty years, most of its gas production is sold on the
"spot market" under commitments which generally extend for only 30 days. All
of the Company's long-term contracts contain provisions for readjustment of
price, termination and other terms customary in the industry. Certain of
these contracts contain "market out" and price adjustment provisions which
could allow the purchaser to cancel the contract or purchase the gas produced
at a substantially lower price. Likewise, if prices increase, the Company can
cancel the contract or require the gas produced to be purchased at the higher
prices.

         The Company does not believe that the loss of any of its oil
purchasers, if not replaced, would have a material adverse effect on its
operations. The loss of a gas purchaser could result in contracts being
executed for sales with prices less than those previously

                                       6

<PAGE>

in effect or in prolonged production delays. The loss or termination of
several gas purchase agreements or purchasers could, if not replaced,
adversely affect the Company's financial condition. The marketing of oil and
gas by the Company can be affected by a number of factors which are beyond
its control, the exact effects of which cannot be accurately predicted.

         OIL AND GAS SALES PRICES AND PRODUCTION COSTS. The following table
sets forth the average sales prices per barrel of oil (including condensates
and other liquid hydrocarbons) and per mcf of gas produced and the production
expense (including taxes and transportation charges) per equivalent mcf of
gas production and Bbl of oil of the Company for each of the periods
indicated.

                    AVERAGE SALES PRICES AND PRODUCTION COSTS

<TABLE>
<CAPTION>

                                                              JUNE 30, 1999    DECEMBER 31, 1998    DECEMBER 31, 1997
                                                              -------------    -----------------    -----------------
                                                              <S>              <C>                  <C>
Average Sales Price per mcf of gas produced                      $  2.21            $  2.11              $  2.65
Average Sales Price per barrel of oil produced                   $ 16.19            $ 13.51              $ 19.35
Production Cost per MCFE (1)                                     $   .79            $   .63              $   .85
Production Cost per BOE (2)                                      $  4.74            $  3.77              $  5.11
</TABLE>

(1)      "MCFE" means equivalent mcf of natural gas and is determined by
         converting each barrel of oil to six mcf of natural gas.

(2)      "BOE" means equivalent barrels of oil and is determined by converting
         six mcf of natural gas to one barrel of oil.

REGULATIONS

          The oil and gas industry is extensively regulated by federal, state
and local authorities. Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Numerous departments and
agencies, both federal and state, have issued rules and regulations binding
on the oil and gas industry and its individual members, some of which carry
substantial penalties for the failure to comply. The regulatory burden on the
oil and gas industry increases its cost of doing business and, consequently,
affects its profitability. Inasmuch as such laws and regulations are
frequently amended or reinterpreted, the Company is unable to predict the
future cost or impact of complying with such regulations.

EMPLOYEES

          At December 31, 1999, the Company had 118 full-time employees. The
Company has 111 employees in its gas compression operations and 7 employees
in its general corporate area. None of these employees are represented by a
union or labor organization. The Company considers its relations with these
employees to be satisfactory.

PROPERTIES AND FACILITIES

          The Company owns its shop facilities in West Monroe, Louisiana. The
main building contains approximately 35,000 square feet, the majority of that
space designed for the re-manufacturing and overhauling of the Company's
compression fleet with the balance being office space. The property includes
approximately eight acres of land.

          The Company owns 12 acres of land, office facilities and a warehouse
in Bridgeport, Texas.

         The Company leases its executive office space in Dallas, which consists
of approximately 4,500 square feet.


                                       7
<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

          The Company is not currently involved in any material litigation or
proceeding and is not aware of any such litigation or proceeding threatened
against it.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of its fiscal year ended December 31, 1999.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

          Set forth below is certain information with respect to each
executive officer of the Company. Executive officers are elected by the Board
of Directors of the Company and serve at its discretion.


<TABLE>
<CAPTION>

          NAME                         AGE                    POSITION
          ----                         ---                    --------
          <S>                          <C>              <C>
          Kelcy L. Warren               44              Co-Chief Executive Officer
                                                        Co-Chairman of the Board

          Ray C. Davis                  57              Co-Chief Executive Officer
                                                        Co-Chairman of the Board

          Jack D. Brannon               43              Senior Vice President/
                                                        Chief Financial Officer


</TABLE>


          The following is a brief description of the business background of
          each of the executive officers of the Company.

          Mr. Ray C Davis has served as Co-Chief Executive Officer and
Co-Chairman of the Board of Directors since September 22, 1999. He is also a
cofounder and senior partner of Energy Transfer Company, a group of
partnerships focused on the acquisition and enhancement of natural gas related
midstream assets and energy service companies. From March 1993 through May,
1996, Mr. Davis served as Chairman of the Board and Chief Executive Officer of
Cornerstone Natural Gas, Inc., a publicly traded natural gas company focused
on midstream assets. From 1988 through 1993, he served as Chairman of the
Board of Capstone Partners, Inc., an investment and management company
specializing in company acquisitions and special management situations. Mr.
Davis received a B.S. and a B.A. from LeTourneau University.

          Mr. Kelcy Warren has served as Co-Chief Executive Officer and
Co-Chairman of the Board of Directors since September 22, 1999. He is also a
cofounder and senior partner of Energy Transfer Company, a group of
partnerships focused on the acquisition and enhancement of natural gas related
midstream assets and energy service companies. From March, 1993 through May,
1996, Mr. Warren served as President and Chief Operating Officer of
Cornerstone Natural Gas, Inc., a publicly traded natural gas company focused
on midstream assets. From 1981 through 1993, Endevco, Inc. (predecessor of
Cornerstone Natural Gas) employed Mr. Warren in various capacities, the last
as President. Mr. Warren received B.S from the University of Texas at
Arlington.

          Mr. Jack Brannon has served as Senior Vice President and Chief
Financial Officer since January 1, 1997. Previously, he was employed by BOK
Capital Services Corporation as Senior Vice President (1994 - 1996) and its
affiliate, Bank of Oklahoma, N.A., as Vice President, Energy Group (1984
-1996). He holds three degrees from the University of Texas at Austin: a B.S.
with honors, an M.A, and an M.B.A.

                                       8
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

          As of March 17, 2000, the Company had approximately 1,171 holders of
record of its common stock. Effective September 3, 1998, the Company's common
stock was approved for listing on the American Stock Exchange ("AMEX") under
the symbol "OOC." The table below reflects the high and low bid prices per
share of the Company`s common stock for each calendar quarter during the time
period from 1997 to 1999 as quoted by AMEX since September 3, 1998, and NASDAQ
for prior periods. The bid quotations reflect inter-dealer prices without
adjustment for retail markups, markdowns or commissions and may not reflect
actual transactions.


<TABLE>
<CAPTION>


                                    1999                    1998                    1997
                                    ----                    ----                    ----
          QUARTER             HIGH        LOW         HIGH        LOW         HIGH        LOW
          -------             ----        ---         ----        ---         ----        ---
          <S>                <C>        <C>          <C>        <C>          <C>        <C>
          First              $1.313     $0.875       $2.750     $2.063       $1.688     $1.188

          Second              1.750      1.000        2.563      2.063        2.500      1.531

          Third               1.438      1.000        2.313      1.688        2.625      2.063

          Fourth             $1.250     $0.563       $1.938     $1.063       $2.750     $2.188


</TABLE>


          The Company has not paid any cash dividends on shares of its common
stock since its organization and currently intends to continue its policy of
retaining earnings, if any, for the Company's operations. The Company is
prohibited by certain loan agreement provisions from paying dividends.

ITEM 6.   SELECTED FINANCIAL DATA

          Certain selected financial data is presented for each of the five
years ended December 31:


<TABLE>
<CAPTION>


                                                   1999               1998              1997             1996              1995
                                                   ----               ----              ----             ----              ----
                                                       (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
          <S>                                   <C>                <C>             <C>                 <C>            <C>
          Total revenues                        $25,157            $26,242           $16,027           $9,443            $9,943
          Net income (loss)                         121               12(1)        (1,687)(2)            (160)        (1,438)(3)
          Basic and dilutive net
            Income (loss) per
            Common share                            .00                .00              (.07)            (.01)             (.11)
          Total assets                          106,393            106,921            84,365           25,810            26,041
          Long-term debt:
            Current portion                       2,918                 --                 5              177               682
            Long-term portion                    58,381             58,829            39,076            5,362             9,000
          Obligation under capital
            Lease                                 1,302              1,673               464               --                --


</TABLE>



(1)       Includes a provision to reduce the carrying value of other equipment
          of $162,000 and a charge-off of the Company's unamortized original
          organizational costs of $112,000.

(2)       Includes recognition of contingent warrant expense of $1,440,000.

(3)       Includes a provision to reduce the carrying value of certain
          compression equipment of $1,790,000.


                                       9
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
1999 VERSUS 1998

          Compression and gas treating service fees increased $228,000 or 1%
from 1998. The Company did not experience the level of revenue growth in 1999
that it achieved in 1998. The reasons were twofold: the Company discontinued
compression services in February 1999, for a client which represented
approximately 6% of its deployed compression horsepower. Additionally, the
Company believes the entire compression services industry experienced a
general slowdown in compression demand growth apparently caused by the
precipitous fall in 1998 of natural gas prices which subsequently impacted the
industry's client base's capital budgets for 1999. The Company believes
rebound in the natural gas price in 1999 has refueled compression demand
growth in the last half of the year. From July through December 1999, the
Company's deployed compression horsepower grew 7%. July was the Company's
lowest deployment level for all of 1999. Compression operating costs decreased
$212,000 (3%) from 1998 due to continued focus on cost controls in the field
operations.

          Compressor sales and remanufacturing revenue fell $303,000 (43%)
from 1998. The decrease reflects the Company's continued focus on the higher
margin contract compression services over third-party equipment sales. The
associated compressor sales and remanufacturing direct costs fell $398,000
(59%) from 1998 due to increased focus on job costing.

          Oil and gas sales decreased $1 million from 1998 due to the sale of
the oil and gas operations in July 1999. The Company held 100% of its oil and
gas producing interest in Sunterra. which was majority owned by the Company
but operated by the minority owner Prize. On July 2, 1999, the Company sold
100% of its interest in Sunterra to Prize for $1 million in cash and 100%
interest in the Will-O-Mills gas treating plant, a 300GPM Amine Plant in West
Texas. The Company entered into the transaction to replace a depleting asset
with a redeployable asset with a similar operating profile to gas compression.
The Company reported a $421,000 gain on the sale. Oil and gas operating costs
fell $258,000 from 1998 due to the previously described sale.

          Compressor depreciation increased $200,000 (4%) from 1998. The
increase was due to 1) continued capital investment to upgrade the fleet and
2) a substantial turnover of compression equipment on existing compression
jobs in the March - July 1999 period. The Company believes the latter was the
result of an industrywide turnover of equipment. The industry's collective
client base, predominantly exploration and production companies, coming off a
poor gas price year in 1998 and looking for cost and revenue efficiencies,
made a major effort to "right size" their existing rental compression to the
current application. The result was a major turnover of equipment on
applications. The turnover generated a higher than normal level of capital
investment in refurbishing idle equipment to replace the returning over or
under sized equipment. Oil and gas depletion and depreciation fell $270,000
due to the July Sunterra sale described above. Intangibles amortization
increased $233,000 from 1998 due to the amortization of the balance of the
non-compete and non-solicitation agreements between the Company and two former
executive officers of the Company who resigned in December 1998.

          General and administrative expense fell $375,000 (9%) from 1998. The
Company's continued focus on cost controls was the principal reason for the
cost reduction. Included in 1999 general and administrative costs is
approximately $300,000 of predominately legal and professional costs
surrounding the activities of two special committees of the Board of Directors
established to review and evaluate certain merger and acquisition activities
during the year.

          Cashflow, defined as earnings before interest, taxes, depreciation,
and amortization ("EBITDA") rose $159,000 from 1998 to $11 million.

          In November 1999, the Company sold and leased back virtually all of
its owned vehicles to a subsidiary of GE Capital. The transaction generated a
net loss on sale of $169,000.

          Interest expense increased $692,000 from 1998 due to substantial
fleet growth in 1998 that was predominantly debt financed. That growth was
being generated over all of 1998, the increased interest expense is fully
realized in 1999. The July Sunterra sale eliminated minority interest expense
beyond that point. As a result, this expense item fell $58,000.

                                       10
<PAGE>

          The Company reported a pre-tax loss of $293,000 for the 1999 fiscal
year versus $129,000 pre-tax profit for 1998. However, an income tax benefit
of $414,000 created after-tax net income of $121,000 versus 1998 net earnings
of $12,000.

          Capital expenditures on the compressor fleet totaled $11.1 million
in 1999 versus $21.1 million in 1998. The acquisition of compression equipment
through purchase / leaseback transactions accounted for $1.5 million of the
1999 fleet capital expenditures. Roughly 85% of the aggregate purchase /
leaseback investment occurred in December 1999 and, therefore, had little
impact on 1999 earnings. Field capital expenditures, to sustain the value and
operational performance of the operating fleet, totaled $3.1 million. Roughly
90% of the remaining $6.5 million capital investment represented investment in
the existing fleet through shop operations to sustain and enhance the value of
the existing fleet as it was deployed on new jobs. The balance represented
purchases of equipment in the open market to fill job applications, which
could not be matched with equipment in the existing fleet. The Company
believes that the shop CAPEX levels on the existing fleet were inflated in
1999 due to the substantial turnover of equipment on existing jobs in the
spring-through-summer period of 1999. As previously discussed, the Company
believes the entire compression industry experienced a substantial turnover of
equipment during the defined period as the industry's collective client base,
mostly independent exploration and production companies, attempted to "right
size" their leased compression to gain cost and production efficiencies in the
face of 1998 gas and oil price driven budget constraints. The immediate impact
of the action is increased capital investment for little if any additional
revenue. However, there are longer-term benefits in the form of decreased
future capital investment.

RESULTS OF OPERATIONS
1998 VERSUS 1997

          In 1998, compressor rental revenues increased $10.8 million or 87%
from 1997 due to growth associated with the acquisition of working compression
equipment and internal growth. Revenues from compressor sales and
remanufacturing services decreased $271,000 or 28% in 1998 from 1997. This
decrease reflects the concentration of shop labor on maintaining and enhancing
the rental/contract compressor fleet. Gross profit from compressor sales and
remanufacturing services decreased to $36,000 in 1998 from $38,000 in 1997 due
to the recognition of approximately $72,000 of expenses related to third-party
service work classified as inventory at December 31, 1997, was determined to
be unrecoverable in 1998.

          Compressor operating costs of $9.7 million incurred on rental and
contract units increased 92% as a result of the increased horsepower on lease.
Compressor operating cost growth exceeds revenue growth principally due to
incremental costs associated with installing additional equipment as well as
start-up costs in new operating regions.

          Revenues from oil and gas sales decreased $276,000 or 10% in 1998
from 1997 primarily due to a 54% decrease in the volume of oil sold and a
decrease in the average prices received by the Company. This decrease in oil
volume is the result of the sale of a secondary oil recovery project located
in Texas. The average price per Bbl decreased from $19.35 in 1997 to $13.51 in
1998. The volume of natural gas sold by the Company increased 60% during 1998
when compared to 1997 due to the successful drilling of two development wells
and the properties contributed by Prize. The average price of natural gas
received by the Company decreased 20% from $2.65 per Mcf in 1997 to $2.11 per
Mcf in 1998.

          Oil and gas operating costs for 1998 are 9% lower than the same
period in 1997 resulting from the sale of the secondary oil recovery project.

          Depletion, depreciation and amortization of the composite cost of
evaluated oil and gas properties is computed on the units-of-production method
based on estimated proved reserves. The 1998 expense related to oil and gas
properties is 47% higher when compared to 1997 due to the higher volumes of
gas produced. Depreciation of the compressor fleet increased 50% from 1997 due
to the growth of the compressor fleet through acquisition and additions to the
existing fleet. Associated with its acquisition of Ouachita, the Company
changed its estimate of useful lives for certain of its compressor equipment
to 20 years with capitalized overhauls on compressor rental equipment
depreciated over five years. The effect of these changes decreased the 1997
loss from operations, net loss and loss per share (dilutive) by $265,000,
$165,000, and $.01, respectively.

          General and administrative costs increased 5% to $4,299,000 when
compared to 1997. The increase relates to expenses associated with the
Company's increased level of operations. However, general and administrative
expenses as a percentage of total revenues was 16% as compared to 26% for the
same period ended December 31, 1997.

          Interest expense increased to $4,536,000 in 1998 from $1,884,000 in
1997 due to increased debt balances to finance the acquisition of Ouachita,
and additional borrowings to finance the growth of the compressor fleet.
During 1998, the Company has

                                      11

<PAGE>

purchased a number of idle compressor units as well as compressor parts due to
a favorable market price for the equipment with expectation of deploying that
equipment for future compression service contracts. The natural lag between
purchase and contract revenue generation has contributed to the increase in
interest expense.

          Unamortized debt issue cost of approximately $70,000 associated with
the prior credit facility was expensed in the first quarter of 1998 as an
extraordinary item.

CAPITAL RESOURCES AND LIQUIDITY

          On March 30, 1998, the Company replaced its previously existing $20
million senior bank credit facility with a new senior bank credit facility.
The initial maximum commitment was $40 million, which remains expandable to
$60 million with the future addition of other participating financial
institutions. In March 2000, the Company's senior lender agreed to extend the
revolving period until July 2001. The facility as amended is a borrowing base
revolver effective through July 2001, due in full on July 31, 2001. The
December 31, 1999, borrowing base is $47 million but currently limited to the
$40 million commitment that will be reduced by $150,000 per month beginning in
July 2000. The credit facility is collateralized by substantially all of the
assets of the Company. At December 31, 1999, the $40 million commitment was
fully advanced.

          In July 1997, the Company entered into a senior subordinated term
note agreement and senior floating rate note agreement with The Prudential
Insurance Company of North America ("Prudential") for $15 million and $5
million, respectively. The $15 million term note agreement contained a warrant
purchase agreement authorizing Prudential to purchase up to 1 million shares
of the Company's common stock at an initial exercise price of $2.80 per share
until the termination date of the related term note. The fair value of the
warrants, $870,000, was determined using the Black-Scholes model and was
treated as an addition to paid-in capital. The resulting term note amount of
$14,130,000 will be accreted over the 10-year term using its effective
interest rate of 11.14%. The exercise price of the warrants was subsequently
lowered to $1.00 per share in 1999 in connection with the waiver of covenants.
The Company's cash pay-out over the term of the note is at the stated rate of
10.15%.

          The Company relies primarily on the collection of revenues
associated with rental-with-maintenance and contract compression contracts to
fund the Company's working capital and capital expenditure needs. Borrowings
from the Company's senior credit facility are used primarily to finance the
growth of the Company. The coordination of the cash flow from operations and
borrowings from the senior credit facility allows the Company to optimize its
cash flow.

          In July 1999, the Company sold approximately 5,000 horsepower of
idle compression equipment (approximately 2% of the total fleet) in a single
transaction for $2 million. The purchase and sale agreement contains put and
call features that permit 1) the Company to repurchase, at its option,
("Call") the equipment by the end of 1999 at cost, and 2) the purchaser to
("Put") the equipment back to the Company and recover the purchase price plus
accrued interest at 10%. The Put and Call features which were to expire on
December 31, 1999, have been extended by mutual agreement of the Company and
the purchaser to August 30, 2000. The Company has treated the transaction as a
loan for accounting purposes until such time as the put and call features have
either been exercised or expire. To that end, the $2 million sale is carried
as a $2 million current note payable at the fiscal year ended December 31,
1999.

          Net cash provided by operating activities increased to $6.7 million
in 1999 from $3.7 million in 1998 primarily due to inventory levels being
reduced in 1999 versus a $2.7 increase in 1998. Net cash used in investing
activities decreased to $9.9 million in 1999 from $23.7 million in 1998, due
primarily to decreased capital expenditures on the compressor fleet. Net cash
provided by financing activities decreased to $3.6 million in 1999 from $20
million in 1998, due primarily to decreased capital expenditures on the
compressor fleet. At December 31, 1999, the Company had current assets of
approximately $9.4 million and current liabilities of $8.4 million. At
December 31, 1999, the Company was out of compliance with certain financial
covenants with two of its credit facilities. The non-compliance was waived by
the lending institutions. As previously stated, the Company is fully advanced
on its senior bank revolving credit facility of $40 million and will not have
access to the net $7 million of unused borrowing base unless an additional
bank or institution is recruited into the credit facility. The Company will
recruit additional lenders into its credit facility, raise additional equity
capital or substantially slow its future growth.

          The Company has generated income and cash flow from operations in
1999 and 1998, the Company has funded its fleet expansion capital expenditures
through borrowings under its senior credit facility. As of December 31, 1999,
the Company has no availability under its senior credit facility. The Company
believes it could raise additional capital through a private or public equity
or debt financing; however, the Company cannot assure that such financing
would be available, or available under acceptable terms. If such financing
proved unavailable, the Company believes that a significant reduction in
capital expenditure related to the expansion of its compressor fleet would
allow the Company to continue as a going concern through 2000.

                                      12

<PAGE>

          On January 4, 2000, the Company announced that the previously
announced merger negotiations with Energy Transfer Company had been
terminated. Further, the Company's Board of Directors had authorized certain
board members to interview and engage an investment banker to explore
strategic alternatives and steps to maximize shareholder value. The Company
formally engaged a major investment bank in February 2000, for this purpose.
All strategic alternatives are being explored including the possible sale of
the Company.

ACCOUNTING PRONOUNCEMENTS

          In December 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share," effective January
1, 1997, resulting in the replacement of primary earnings per share ("EPS")
with a newly defined basic EPS and modification to the computation of dilutive
EPS. As a result, all prior period EPS data has been restated to conform to
the provisions of this statement. (Note 1). In addition, in December 1997, the
Company adopted SFAS No. 129, "Disclosure of Information about Capital
Structure," resulting in no material impact. In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective for fiscal years beginning after
December 15, 1997. These statements have not had a material effect on the
Company's financial position or results of operations.

YEAR 2000

          The Company prepared a Year 2000 Plan and reviewed all Company
hardware, software and embedded systems for Year 2000 compliance. As part of
the review, the Company tested all critical compressor equipment and systems
to the extent possible. The Company incurred no material costs in testing its
internal compressor equipment and systems. There have been no issues involving
the Year 2000, therefore the Company does not anticipate any future concerns.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EFFECTS OF INFLATION

          In recent years inflation has not had a significant impact on the
Company's operations or financial condition. The impact of inflation on the
Company in the future will depend on the relative increases, if any, the
Company may realize from its compressor sales, interest rates on debt, rental
rates and the selling price of gas.

DERIVATIVE FINANCIAL INSTRUMENTS

          The Company had used derivative financial instruments such as
commodity futures agreements to hedge against fluctuations in oil and gas
prices. Gains and losses on these derivative instruments are recorded as
adjustments to oil and gas sales. The Board of Directors of the Company have
adopted a policy governing the use of derivative instruments which requires
that all derivatives used by the Company relate to an anticipated transaction
and prohibits the use of speculative or leveraged derivatives. As of December
31, 1999, the Company did not have any derivative financial instruments.

INTEREST RATE RISK

          Total debt at December 31, 1999, included $16 million of fixed rate
debt and $45 million of floating-rate debt attributed to borrowings. As a
result, the Company's annual interest cost will fluctuate based on changes in
short-term interest rates. The impact on annual cash flow of a 10% change in
the short-term interest rate would be less than $400,000.

                                      13

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The Company's Consolidated Financial Statements required by this
Item begin at page 21 following page 20 hereof.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          On July 16, 1998, the Executive Committee of the Board of Directors
and the Audit Committee of the registrant determined to engage Arthur Andersen
LLP as its independent auditors for the fiscal year ending December 31, 1998.
On July 24, 1998, the registrant orally notified PricewaterhouseCoopers LLP
("PWC"); its independent auditor for the fiscal year ending December 31, 1997,
of this determination and that PWC would not continue to be engaged for the
fiscal year ending December 31, 1998. The determination to replace PWC was
made by the Audit Committee and the Executive Committee of the Board of
Directors of the registrant.

          The reports of PWC for the fiscal year ended December 31, 1997,
contained no adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles. During
the fiscal year ended December 31, 1997, and during the period from December
31, 1997 to July 24, 1998, there were no disagreements between the registrant
and PWC concerning accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.






                                      14

<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to each person currently
serving on the Company's Board of Directors.

<TABLE>
<CAPTION>

                           Position in the Company and Principal Occupation
Director & Age             or Employment for the Last Five Years
---------------------      --------------------------------------------------------------------------------
<S>                       <C>
Ray C. Davis               Chairman of the Board, C0-Chief Executive Officer, Director; Member of Executive
Age 56                     Audit and Human Resources Committees of the Board of Directors; Principal
                           of Energy Transfer Company.

Kelcy L. Warren            Director; Co-Chief Executive Officer; Member of Executive and Human Resources
Age 43                     Committees of the Board of Directors; Principal of Energy Transfer Company.

Richard D. Brannon         Member of Executive, Audit and Human Resources Committees
Age 41                     of the Board of Directors; President of Brannon Oil & Gas, Inc.

Charles M. Butler, III     Director; Member of the Audit and Human Resources Committees of the
Age 56                     Board of Directors; Attorney.

James D. Finley            Director; Managing Partner and Director
Age 56                     of Finley Resources

Neal A. Hawthorn           Director; Vice President and Director of R. Lacy, Inc.
Age 66

Clifford S. Lewis          Director; Member of the Audit and Human Resource Committees of the Board of
Age 45                     Directors; Vice President and Chief Financial Officer of Hawkins International

Matthew S. Ramsey          Director; Member of Executive and Human Resources; Committees of the Board of
Age 45                     Directors; Consultant to the Company.

Don E. Smith               Director; former President of Equity Compressors, Inc.;
Age 50                     Cattle Rancher.

Jon P. Stephenson          Director; Member of Executive and Human Resources Committees of the Board of
Age 54                     Directors; President of Sandollar Oil & Gas, Inc.

Dennis W. Estis            Director; Self-Employed.
Age 53

</TABLE>

         Mr. Davis became a Director in December 1996. Mr. Davis became Chairman
of the Board and Co-Chief Executive Officer in September of 1999. He is a
founding principal of Energy Transfer Company, an energy investment firm, which
was formed in 1996. Mr. Davis founded Capstone Partners in 1988, a buy out firm
formed to acquire under-performing companies. He served as Chairman and CEO of
several companies acquired by Capstone Partners, including Healthco
International Inc., a $500 million a year dental supply company, HPSC, an
equipment leasing company quoted on the Nasdaq system and Cornerstone Natural
Gas, Inc., a natural gas pipeline and processing company listed on the American
Stock Exchange. Mr. Davis served as Director and General Partner of Hydro
Environmental Services, Inc. from 1989 to 1992, and as Chief Executive Officer
of Healthco International, Inc. from June 1991 to August 1992. He was also
Chairman of the Board of HPSC, Inc. from 1991 to 1992. From 1983 to 1988, he
shared the operating duties of Colt Industries, a Fortune 200 diversified
manufacturer. Mr. Davis was last responsible for two groups of companies with
operations in 15 countries and sales in excess of $1 billion. Mr. Davis held
several executive positions in Colt Industries and, prior to that, held several
management positions at Mobil Chemical, a division of Mobil Oil.

                                   15

<PAGE>

         Mr. Warren became a Director in December of 1996. Mr. Warren became
Co-Chief Executive Officer in September of 1999. He is a founding principal of
Energy Transfer Company, an energy investment firm, which was formed in 1996.
Prior to forming Energy Transfer Company, he was employed by Endevco, Inc., a
natural gas pipeline and processing company and predecessor of Cornerstone
Natural Gas, Inc., from 1981 to 1992. At Endevco, Mr. Warren served in many
capacities, including President, Chief Operating Officer and Director. He and a
group of investors acquired controlling interest of Cornerstone Natural Gas,
Inc. in 1993. Mr. Warren served as President, Chief Operating Officer and a
director of Cornerstone unit its sale to El Paso Natural Gas Company in 1996.
Prior to joining Endevco, Mr. Warren was employed by Lone Star Gas Company.

         Mr. Brannon is President of Brannon Oil & Gas, Inc., an independent
energy investment company. Mr. Brannon was Chairman of the Board of the Company
until September of 1999. Mr. Brannon is also an active investor in oil and gas
production, natural gas pipelines, real estate and equity investments. Mr.
Brannon served as director of Cornerstone Natural Gas, Inc., a natural gas
pipeline and processing company, until its sale to El Paso Natural Gas Company
in 1996. Mr. Brannon also previously served as an Advisory Board member to First
Interstate Bank, Fort Worth. Mr. Brannon began his career in 1981 with TXO
Production Corp. as a completion and reservoir engineer. Mr. Brannon has a B.S.
degree in Petroleum Engineering from the University of Texas and is a Certified
Professional Engineer. Mr. Brannon is the brother of Jack D. Brannon, Senior
Vice President and Chief Financial Officer of the Company.

         Mr. Butler has served the Company as a Director since the Company's
inception in 1989. He is presently self employed as a financial and regulatory
consultant in Houston, Texas, and previously was a Senior Vice President of
Kidder, Peabody & Co., Inc. Prior to that, he was Chairman of the Federal Energy
Regulatory Commission (1981-1983); Administrative Assistant to Senator John
Tower (1979-1981); Corporate Counsel to American Natural Service Company
(1976-1979); and he has served in several capacities as an attorney. He holds a
B.A. Degree in Economics from the University of Houston and a J.D. from the
University of Texas, where he earned Order of the Coif Honors.

         Mr. Finley became a Director in April of 1997. He is an independent
oil and gas producer. Previously, Mr. Finley was a managing partner of Finley
Resources, an independent oil and gas producer. Mr. Finley was Chief Financial
Officer of Duer Wagner & Co. from 1982 until 1996 when he became its Managing
Partner. Mr. Finley is an active investor in oil and gas production, natural
gas pipelines and real estate investments. Mr. Finley has a broad range of
experience in the management of oil and gas operations and the acquisition
and financing of oil and gas properties. Mr. Finley began his career at
Arthur Andersen & Co. as a member of the Dallas/Fort Worth oil and gas
industry team. Mr. Finley received a Bachelor of Business Administration from
the University of Texas at Austin in 1979.

         Mr. Hawthorn became a Director in April of 1997. He is a Vice President
and Director of R. Lacy, Inc., an independent oil and gas company in Longview,
Texas. Prior to joining R. Lacy, Inc. in 1978, he was a partner of the law firm
of Kenley, Boyland, Hawthorn, Starr and Coghlan in Longview, Texas. Mr. Hawthorn
is a member of the Texas Mid-Continent Oil and Gas Association. Mr. Hawthorn
holds a B.B.A. Degree from the University of Texas at Austin and a J.D. from the
University of Texas Law School.

         Mr. Lewis has served the Company as a Director since its inception in
1989. He also served as the Company's Vice President, Secretary and Treasurer
from the Company's inception through April 5, 1996. Mr. Lewis has served as Vice
President and Chief Financial Officer of Hawkins Oil & Gas, Inc. from 1988 to
present. Previously, he was employed by Hawkins International as Controller
(1986 to 1988), as Manager of Financial Accounting (1984 to 1986), Senior
Financial Accountant (1981 to 1984) and by Arthur Young & Company (now Ernst
& Young) as Senior Accountant. He holds a B.S. Degree in Accounting and an
M.B.A. Degree from Kansas State University.

         Mr. Ramsey became a Director in December 1996. Mr. Ramsey served as
President and Chief Executive until September of 1999 when he resigned to become
a consultant to the Company. Mr. Ramsey served as Vice President of Nuevo Energy
Company, an independent energy company, from 1990 to 1996. From 1990 to 1996, he
was employed by Torch Energy Advisors Incorporated, a company providing
management and operations services to energy companies including Nuevo Energy
Company, last serving as a director and Executive Vice President. Mr. Ramsey
joined Torch Energy as Vice President of Land and was named Senior Vice
President of Land in 1992. Prior to joining Torch Energy, Mr. Ramsey was
self-employed for eleven years. Mr. Ramsey holds a B.B.A. in Marketing from the
University of Texas at Austin and a J.D. from South Texas College of Law. Mr.
Ramsey is a graduate of Harvard Business School's Advanced Management Program.
He is licensed to practice law in the State of Texas.

         Mr. Smith has served as Director since June 1993. He founded and was
President of Mid-South Compressors, Inc. and its successor in Columbia,
Mississippi, from 1985 to 1996. Mid-South Compressors, Inc. became a wholly
owned subsidiary of the Company in 1993 and was merged into Equity Compressors,
Inc. another wholly owned subsidiary of the Company in 1995. From 1981 to 1985,
he was the Branch Manager of Compressor Systems, Inc. Previously, he was the
founder and President of Oilfield Maintenance Service, Inc. from 1974 to 1981,
and Division Compressor Mechanic of Shell Oil Company from 1967 to 1974.

                                      16

<PAGE>

         Mr. Stephenson became a Director in December of 1996. He is President
and owner of Sandollar Oil & Gas, Inc., an independent exploration and
production company located in Longview, Texas. Prior to forming Sandollar in
1981, Mr. Stephenson was employed from 1971 to 1980 by Ensearch Exploration,
Inc. in Dallas, Texas, in various engineering capacities, with his last
assignment being Vice President of Production. He began his career in 1968 as an
engineer with Shell Oil Company in New Orleans, Louisiana. Mr. Stephenson
received his B.S. degree in Petroleum Engineering from Louisiana Tech University
in 1968. He is a Certified Professional Engineer in the State of Texas.

         Dennis W. Estis became a director of the Company in August of 1997 in
connection with the Company's acquisition of Ouachita Energy Corporation. Until
December 17, 1998, Mr. Estis was the President and Chief Operating Officer of
Ouachita Energy Corporation. Mr. Estis is self-employed. Mr. Estis founded
Ouachita Energy Corporation in 1976. Mr. Estis holds a Bachelor of Science in
Chemical Engineering and a M.B.A. Degree from Louisiana State University.

COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS

         The Company has standing Executive, Audit and Human Resources
Committees of the Board of Directors. Presently, the members of the Executive
Committee are Richard D. Brannon, Charles M. Butler, III, Ray C. Davis, Matthew
S. Ramsey and Kelcy L. Warren, the members of the Audit Committee are Richard D.
Brannon, Ray C. Davis, Clifford S. Lewis, Neal A. Hawthorne and James D. Finley,
and the members of the Human Resources Committee are Richard D. Brannon, Charles
M. Butler, III, Clifford S. Lewis, Matthew S. Ramsey, Jon P. Stephenson and
Kelcy L. Warren. The function of the Executive Committee is to act for the Board
between Board meetings. The Executive Committee held one meeting during 1999.
The primary functions of the Audit Committee are to monitor the Company's
internal accounting controls, review quarterly and annual financial information
and review the services and fees of the independent auditors. The Audit
Committee met one time during the fiscal year ended December 31, 1999. The
primary functions of the Human Resources Committee are to review and approve
management's recommendations concerning compensation of executive officers and
certain other employees and to administer the Company Employee Stock Option
Plan. The Human Resources Committee has the authority, in its discretion, to
select the eligible officers and employees to whom options shall be granted and
the number of shares of the Company's Common Stock to be subject to such
options. The Human Resources Committee also serves to evaluate top management
and their successors within the Company. The Human Resources Committee met one
time during the fiscal year ended December 31, 1999.

         The Board of Directors met 11 times during fiscal 1999. All directors
were present for at least 75% of the aggregate of the meetings of the Board of
Directors and of the committees of the Board on which each director served.

DIRECTOR COMPENSATION

         Directors of the Company who are not also employees of the Company are
paid an annual retainer fee of $6,000, payable quarterly, plus an additional
payment of $500 for each directors' and committee meeting attended in person or
held by means of conference telephone calls. Each of the Directors other than
Don Smith, Cliff Lewis and Charles Butler waived such compensation for the term
ended December 31, 1999.

         Mr. Ramsey is a party to a consulting agreement with the Company under
which he is paid $15,694 per month for legal and consulting services.

         Mr. Butler served as Chairman of a Special Committee of the Board of
Directors to review a proposed transaction between the Company and a group of
companies owned by Mr. Davis and Mr. Warren. The Special Committee eventually
decided not to pursue such transaction. The Compensation Committee of the Board
recommended and the entire Board approved paying Mr. Butler $15,000 for his
services as Chairman of such Special Committee.

         On June 11, 1998, all non-officer Directors were each issued options to
purchase 6,666 shares of Common Stock. The exercise price of all options granted
in 1998 was equal to the fair market value of the Common Stock on the date of
grant. The options were granted for a term of 40 years.

         On May 20, 1999, all non-officer Directors were each issued options to
purchase 6,666 shares of Common Stock. The exercise price of all options granted
in 1999 was equal to the fair market value of the Common Stock on the date of
grant. The options were granted for a term of 40 years.

                                       17

<PAGE>

         The Company entered into an agreement with Richard D. Brannon whereby
he was paid $10,000 per month for the first three months of 1997 for his efforts
in developing business opportunities for the Company's compressor leasing
business. Commencing June 1997, Mr. Brannon was retained as a business
development consultant for which he was paid $5,000 per month through June 1999
when Mr. Brannon waived his consulting fee.

EMPLOYMENT AGREEMENT

          Dan McCormick is party to Change of Control Agreement pursuant to
which such executive officer is entitled to payments equal to the sum of (i) one
years' salary plus (ii) the greater of such executive's last year bonus or the
bonus such executive would have earned for the current fiscal year under any
bonus plan in effect for the Company at the time of such termination if such
executive is terminated without cause following a change of control. Jack D.
Brannon is party to Change of Control Agreement pursuant to which such executive
officer is entitled to payments equal to the sum of two years' salary if such
executive is terminated without cause following a change of control.

         In September of 1999, the Company entered into a consulting agreement
with Mr. Ramsey under which Mr. Ramsey gave up his rights under a change of
control agreement and agreed to be paid $15,694 per month for 18 months. Mr.
Ramsey has agreed to provide consulting and legal services to the Company and
has agreed not to compete against the Company during the consulting term.

ITEM 11. EXECUTIVE COMPENSATION

         Information required by this item is incorporated by reference to the
Section entitled "Compensation of Directors and Executive Officers" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 2000 annual meeting.

SUMMARY COMPENSATION TABLE

         Certain information with respect to the following table sets forth all
compensation paid for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended December 31, 1998, 1997 and 1996 to
(a) each person serving as the Company's chief executive officer during fiscal
1998 and (b) each of the Company's most highly compensated executive officers
whose aggregate compensation during fiscal 1998 exceeded $100,000.

                          Long Term Compensation Awards
                      Annual Compensation Number of Shares
<TABLE>
<CAPTION>

                                                                                 Other            Securities          All Other
     Name and Principal                         Fiscal                           Annual           Underlying        Compensation
          Position               Year          Salary(1)        Bonus         Compensation          Options              (2)
                                 ----          ---------       -------        ------------          -------              ---
<S>                              <C>           <C>             <C>            <C>                 <C>               <C>
Matthew S. Ramsey(3)             1999           $163,745       $    --              $   --          $      --           $  2,788
Chief Executive Officer          1998           $196,081            --                  --                 --              1,333
                                 1997           $175,000       $87,500              $   --          $ 213,890           $  1,010
Jack D. Brannon                  1999           $148,650       $    --              $   --          $      --           $     --
                                 1998           $127,755            --                  --                 --                 --
                                 1997           $115,000       $57,500              $   --          $ 140,560           $     --

Ray C. Davis (4)                 1999             $   --       $    --              $   --          $      --           $     --

Kelcy L. Warren (4)              1999             $   --       $    --              $   --          $      --           $     --

</TABLE>

(1) Includes all before-tax contributions to the Employee 401(k) Plan.

(2) Other compensation consists solely of employer contributions to the Employee
401(k) Plan. Does not include the value of any perquisites because the aggregate
amount of such compensation does not exceed the lesser of $50,000 or 10% of the
total amount of annual salary and bonus for any named individual.

(3) Mr. Ramsey was the Chief Executive Officer of the Company until Septermber
of 1999.

                                        18

<PAGE>

(4) Mr. Warren and Mr. Davis became Co-Chief Executive Officers of the Company
in September of 1999. Mr. Warren and Mr. Davis have agreed to serve in such
positions for no compensation.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

         The following table sets forth certain information with respect to
options exercised by the named executive officers of the Company during fiscal
1999, and the number and value of unexercised options held by such executive
officers at the end of the fiscal year.

<TABLE>
<CAPTION>

                                                                  Number of Securities               Value of Unexercised
                                                                 Underlying Unexercised              In-The-Money Options
                                                                 at December 31, 1999                at December 31, 1999
                                                                 ----------------------              --------------------
                                   Shares
                                 Acquired on      Value
Name                              Exercise       Realized      Exercisable      Unexercisable     Exercisable      Unexercisable
---------                         --------       --------      -----------      -------------     -----------      -------------
<S>                              <C>             <C>           <C>              <C>               <C>              <C>
Matthew Ramsey                            --          $--          127,126                 --              --                 --
Jack Brannon                              --          $--           56,224            105,732              --                 --
Ray Davis                                 --          $--           28,332                 --              --                 --
Kelcy Warren                              --          $--           28,332                 --              --                 --

</TABLE>

Market value of the underlying shares of Common Stock at the date of exercise or
fiscal year-end, as the case may be, minus the option exercise price and
multiplied by the applicable number of shares. The last sale price for the
Company's Common Stock as quoted on the American Stock Exchange on December 31,
1999, the last trading day of the fiscal year, was $0.5625.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         At the close of business on May 10 , 2000, there were 29,121,211 issued
and outstanding shares of the Common Stock (exclusive of 184,500 shares held in
treasury) of the Company. Each holder of Common Stock is entitled to one vote
per share on all matters. Only stockholders of record at the close of business
on June 12, 2000, will be entitled to consent to the actions set forth July 13,
2000 herein.

         The following table sets forth certain information, as of May 1, 2000,
regarding the beneficial ownership of the Company's Common Stock by (i) all
persons who were known by the Company to be beneficial owners of more than five
percent of the outstanding shares of Common Stock, (ii) each director, (iii) all
executive officers of the Company and (iv) all the directors and executive
officers of the Company as a group. Unless otherwise noted, the Company believes
that the beneficial owners named below have sole voting and investment power
with respect to such shares.

<TABLE>
<CAPTION>

NAME AND ADDRESS OF                                                                         PERCENT
BENEFICIAL OWNER                                    NUMBER OF SHARES                        OF CLASS
----------------------------------          ------------------------------            ---------------------
<S>                                         <C>                                       <C>
HACL, Ltd., ..........................                  11,463,636(1)                  31.33%
a Texas Limited Partnership
2838 Woodside Street,
Dallas, TX 75206
direct

Energy Investors.......................                  4,136,364                     14.27%
a Texas Joint Venture
2838 Woodside Street,
Dallas, TX 75206
direct

Gregory & Cook, Inc. ..................                  3,037,251                     10.48%
7575 San Felipe, Suite 350,
Houston, TX 77063
direct

                                              19

<PAGE>

Charles M. Butler, III.................                    144,166(2)                     *
direct

James D. Finley........................                    148,788(3)                     *
direct and indirect

Neal A. Hawthorn.......................                      3,333(4)                     *
direct

Clifford S. Lewis......................                     94,911(5)                     *
direct and indirect

Jack D. Brannon........................                    263,000(6)                     *
direct and indirect

Don E. Smith...........................                    716,559(7)                   2.47%
direct and indirect

Richard D. Brannon.....................                  3,280,469(8)                  10.53%
direct and indirect

Ray C. Davis...........................                  1,818,408(9)                   6.02%
direct and indirect

Matthew S. Ramsey......................                    616,542(10)                  2.10%
direct and indirect

Jon P. Stephenson......................                  1,092,378(11)                  3.68%
direct and indirect

Kelcy L. Warren........................                  1,818,408(12)                  6.02%
direct and indirect

Dennis W. Estis........................                  5,370,487(13)                 18.52%
direct

All Directors and Executive Officers

as a Group (12 Persons)................                 15,980,867(14)                 45.49%

</TABLE>

 -------------------
*        Less than 1%

(1) Includes 7,600,000 shares which may be acquired upon the exercise of
presently exercisable warrants. Does not include the 4,136,364 shares of Common
Stock held by Energy Investors, a Texas joint venture. HACL, Ltd. is the
managing joint venturer of Energy Investors, but is obligated to vote the shares
as directed by the other joint venturers (proportionately according to their
interests) and HACL, Ltd. is not entitled to participate in the distribution or
profits attributable to the shares until the other joint venturers receive a
specified annual return on their investment in the shares.

(2) Includes 29,166 shares which may be acquired upon the exercise of presently
exercisable options.

(3) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options and 145,455 share attributable to Mr. Finley's interest in
Energy Investors.

(4) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options.

                                          20

<PAGE>

(5) Includes 63,332 shares which may be acquired upon the exercise of presently
exercisable options, and 31,920 shares held by the 401(k) Plan and allocated to
the account of Mr. Lewis. Excludes 650,000 shares owned by Hawkins Oil & Gas.

(6) Includes 23,000 shares which may be acquired upon the exercise of presently
exercisable options and 240,000 shares which may be acquired upon the exercise
of presently exercisable warrants.

(7) Includes [60,000] [16,666] shares which may be acquired upon the exercise of
presently exercisable options, and 19,718 shares held by the 401(k) Plan and
allocated to the account of Mr. Smith. Also includes 12,000 shares that Mr.
Smith owns as a custodian for his children, pursuant to Uniform Gift to Minors
Act.

(8) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options, 1,101,136 shares attributable to Mr. Brannon's interest in
HACL, Ltd. and 2,165,999 shares which may be acquired upon the exercise of
presently exercisable warrants and which are attributable to Mr. Brannon's
interest in HACL, Ltd.

(9) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options, 611,742 shares attributable to Mr. Davis' interest in HACL,
Ltd. and 1,203,333 shares which may be acquired upon the exercise of presently
exercisable warrants and which are attributable to Mr. Davis' interest in HACL,
Ltd. (10) Includes 35,000 shares which may be acquired upon the exercise of
presently exercisable options, 193,182 shares attributable to Mr. Ramsey's
interest in HACL, Ltd. and 388,360 shares which may be acquired upon the
exercise of presently exercisable warrants and which are attributable to Mr.
Ramsey's interest in HACL, Ltd.

(11) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options, 367,045 shares attributable to Mr. Stephenson's interest in
HACL, Ltd. and 721,999 shares which may be acquired upon the exercise of
presently exercisable warrants which are attributable to Mr. Stephenson's
interest in HACL, Ltd.

(12) Includes 3,333 shares which may be acquired upon the exercise of presently
exercisable options, 611,742 shares attributable to Mr. Warren's interest in
HACL, Ltd. and 1,203,333 shares which may be acquired upon the exercise of
presently exercisable warrants and which are attributable to Mr. Warren's
interest in HACL, Ltd.

(13) Excludes 1,380,675 shares which are held by the ex-wife of the Mr. Estis.
Mr. Estis disclaims beneficial ownership of such shares. Includes, 6,666 shares
which may be acquired by currently exercisable options.

(14) Includes 217,165 shares which may be acquired upon the exercise of
presently exercisable options, 51,638 shares held by the 401(k) Plan and
allocated to the accounts of such individuals, 2,884,847 shares attributable to
such persons' interests in HACL, Ltd., 5,923,024 shares which may be acquired
upon the exercise of presently exercisable warrants and which are attributable
to such persons' interests in HACL, Ltd. and 145,455 shares which are
attributable to Mr. Finley's interest in Energy Investors.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In September of 1999, Mr. Davis and Mr. Warren proposed merging the
Company with several entities owned by Mr. Davis and Mr. Warren. A Special
Committee was formed to review such transaction. The Special Committee
eventually decided not to pursue such transaction.

         In September of 1999, the Company entered into a consulting agreement
with Mr. Ramsey under which Mr. Ramsey gave up his rights under a change of
control agreement and agreed to be paid $15,694 per month for 18 months. Mr.
Ramsey has agreed to provide consulting and legal services to the Company and
has agreed not to compete against the Company during the consulting term.

         On December 16, 1998, the Company, Dennis Estis, the two other
shareholders who granted a proxy to Mr. Estis and certain other parties entered
into a Settlement Agreement. Among other things, the Settlement Agreement (i)
prohibit Mr. Estis from participating in any proxy solicitation relating to
certain actions, (ii) require termination of the proxies granted to him by the
two other shareholders, (iii) dismissed a lawsuit filed by Mr. Estis, (iv)
released certain claims between the parties, (v) provided for a "standstill"
agreement until June 30, 1999 (subject to possible extension and reinstatement
as described below) prohibiting Mr. Estis from participating in enumerated
actions relating to control of the Company and (vi) required the Company to
reimburse Mr. Estis for certain of his out-of-pocket expenses.

                                      21

<PAGE>

         In December of 1997, the Company sold its Columbia, Mississippi,
facility to Don Smith, a director of the Company. Such sale was in connection
with the Company's closing of its Oklahoma City and Columbia, Mississippi
facilities. The Company received approximately $316,000 in cash and realized a
$11,000 loss due to the sale of such facility.

         On August 6, 1997, the Company consummated the acquisition of all of
the stock ownership of Ouachita Energy Corporation and the acquisition of
substantially all of the assets of two affiliated companies (LLC, partnership)
(collectively referred to herein as the "Ouachita Companies") for 7.6 million
shares of Common Stock and the payment in cash or assumption of debt of $24
million. Dennis Estis was the principal stockholder of the Ouachita Companies
and Andy Payne served as chief financial officer of the Ouachita Companies.
Following the closing of such transaction, Mr. Estis and Payne were elected to
the Board of Directors of the Company. In January of 1997, the Company exchange
286,976 shares of Common Stock for the cancellation of approximately $699,000 of
indebtedness owed by the Company to Mr. Estis and an affiliated company.

         On December 19, 1996, the Company consummated the sale of 8,000,000
shares of its Common Stock, and warrants which, upon satisfying certain vesting
requirements, entitle the holder to purchase up to an additional 8,000,000
shares of Common Stock at a price of $.91 per share (the "Warrants"). The sales
of the Common Stock and Warrants were made pursuant to the terms and conditions
of the Stock Purchase Agreement dated October 16, 1996, between the Company and
HACL, Ltd., a Texas limited partnership ("HACL"). All of the Warrants and
3,863,636 of the shares of Common Stock were issued to HACL and 4,136,364 shares
of Common Stock were issued to HACL's designee, Energy Investors ("Energy
Investors"), a Texas joint venture of which HACL is the managing joint venture
partner, for aggregate consideration of $4,400,000 in cash. The general partner
of HACL is Six-Dawaco, Inc., a Texas corporation, whose directors and executive
officers are Ray C. Davis and Kelcy L. Warren. Ray C. Davis, Kelcy L. Warren,
Matthew S. Ramsey, Richard D. Brannon and Jon P. Stephenson are each limited
partners in HACL. James D. Finley is a joint venture partner in Energy
Investors. In 1997, all of the Warrants vested and became exercisable.

         Pursuant to the Stock Purchase Agreement, HACL was granted the right to
designate up to eight directors of the Registrant upon consummation of the
transaction. Following such consummation, John B. Hawkins, Donald C. Nejedly and
David J. Parsons resigned as directors of the Company, and HACL's designees, Ray
C. Davis, Kelcy L. Warren, Matthew S. Ramsey, Richard D. Brannon and Jon P.
Stephenson, were elected to serve as directors. Under the terms of the Stock
Purchase Agreement, the Company has agreed to hereafter include among its
nominees for the Board of Directors a sufficient number of persons designated by
HACL such that the percentage of directors proposed to be composed of HACL's
designees is approximately proportionately equal to HACL's percentage ownership
of the Company's total outstanding shares of Common Stock.

         Hawkins Oil & Gas, Inc. ("Hawkins Oil & Gas") owns 4.45% of the
outstanding stock of the Company, two of the principals of Hawkins Oil & Gas,
Mr. John B. Hawkins and Mr. James F. Hawkins, Jr., served as Directors of the
Company in 1996 and Mr. Clifford S. Lewis, an officer and shareholder of Hawkins
Oil & Gas, continues to be a director of the Company. In March of 1996, the
Company and Hawkins Oil & Gas, Inc. entered into an agreement pursuant to which
the sublease of office space by the Company from Hawkins Oil & Gas was
terminated as of December 31, 1995; operations of certain oil and gas properties
owned jointly by the Company and Hawkins Oil & Gas were transferred to the
Company; and the parties agreed (i) upon the method of allocating the
compensation of Mr. Lewis (who, at the time of the execution of the agreement,
was servicing as a Vice President, Treasurer and Secretary of the Company) and
other shared employees, (ii) to the joint access to certain geologic and
production data maintained by the Company (which data the Company agreed to
transfer to Hawkins Oil & Gas at no cost if the Company should sell all or
substantially all of its oil and gas assets or terminate its active involvement
in the business of oil and gas exploration, development and production) and
computer data and facilities maintained by Hawkins Oil & Gas, (iii) to
participate jointly in the administration of their respective self-insured
health plans, and (iv) that the Company would have the right to participate in
an oil and gas concession in Pakistan which Hawkins Oil & Gas is pursuing. By a
subsequent agreement with Hawkins Oil & Gas and Messrs. John B Hawkins and James
F. Hawkins, Jr., the Company agreed to change its name from Hawkins Energy
Corporation prior to January 1, 1997, and to transfer to Mr. James F. Hawkins,
Jr., title to the motor vehicle that he had been using as a company vehicle
while an officer and director of the Company.

                                       22

<PAGE>

ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


<TABLE>
<CAPTION>


    (a)  Exhibits:
         <S>      <C>
         3.1      Certificate of Incorporation. Previously filed as Exhibit 3.1
                  to the Company's Registration Statement on Form S-8 (File No.
                  333-23925), which Exhibit is incorporated herein by reference
                  thereto.
         3.2      Amendment to Certificate of Incorporation. Previously filed
                  as Exhibit 3.2 to the Company's Registration Statement on
                  Form S-8 (File No. 333-23925), which Exhibit is incorporated
                  herein by reference thereto.
         3.3      Amended and Restated By-Laws. Incorporated herein by
                  reference thereto. (1)
         4.1      Note Agreement dated July 31, 1997 by and between the Company
                  and Prudential Life Insurance Company of America.
         4.2      Subordinated Note and Warrant Purchase Agreement dated July
                  31, 1997 by and between the Company and Prudential Life
                  Insurance Company of America.
         4.3      Registration Rights Agreement dated as of July 31, 1997 by
                  and between the Company and Prudential Life Insurance Company
                  of North America.
         4.4      Participation Agreement dated July 31, 1997 by and among the
                  Company, Prudential Life Insurance Company of North America
                  and certain stockholders of the Company.
         4.5      Registration Rights Agreement dated as August 6, 1997 by and
                  between the Company and certain stockholders named therein.
         4.6      Common Stock Purchase Warrant dated July 31, 1997 issued by
                  the Company to Prudential Life Insurance Company of America.
         10.1     Agreement and Plan of Merger dated as of May 15, 1997 by and
                  among the Company, OEC Acquisition Corporation, Ouachita
                  Energy Corporation, and Dennis W. Estis.
         10.2     First Amendment to Agreement and Plan of Merger dated as of
                  July 30, 1997 by and among the Company, OEC Acquisition
                  Corporation, Ouachita Energy Corporation, and Dennis W.
                  Estis.
         10.3     Asset Purchase and Sales Agreement dated as of May 15, 1997
                  by and among the Company, OEC Acquisition Corporation,
                  Ouachita Energy Partners, Ltd., Ouachita Compression
                  Partners, L.L.C. and Dennis W. Estis.
         10.4     First Amendment to Asset Purchase and Sales Agreement dated
                  as of July 30, 1997 by and among the Company, OEC
                  Acquisition Corporation, Ouachita Energy Partners, Ltd.,
                  Ouachita Compression Partners, L.L.C. and Dennis W. Estis.
         10.5     Amended and Restated Employee Stock Option Plan. Previously
                  filed as Exhibit 4.8 to the Company's Registration Statement
                  on Form S-8 (File No. 333-23925), which Exhibit is
                  incorporated herein by reference thereto. (2)
         10.6     Hawkins Energy Corporation 1994 Directors Stock Option Plan.
                  Previously filed as Exhibit 10.8 to the Company's Annual
                  Report on Form 10-KSB for the year ended December 31, 1994,
                  which Exhibit is incorporated herein by reference thereto.(2)
         10.7     Hawkins Energy Corporation 401(k) Plans. Previously filed as
                  Exhibit 4(c) to the Company's Registration Statement on Form
                  S-8 (File No. 33-74640), which Exhibit is incorporated herein
                  by reference thereto. (2)
         10.8     Hawkins Energy Corporation Director Stock Plan. Previously
                  filed as Exhibit 4.6 to the Company's Registration Statement
                  on Form S-8 (File No. 333-23925), which Exhibit is
                  incorporated herein by reference thereto. (2)
         10.9     Revolving Credit Facility dated March 30, 1998 by and among
                  Ouachita Energy Corporation, the Company and Bank of
                  Scotland. Previously filed as Exhibit 10.12 to the Company's
                  Quarterly report on Form 10-QSB for the period ended June
                  30, 1998, which exhibit is incorporated herein by reference
                  thereto. (2)
         21.1     Subsidiaries of the Registrant. (1)
         23.1     Consent of Independent Public Accountants. (1)
         23.2     Consent of Independent Public Accountants. (1)
         27       Financial Data Schedule. (1)


</TABLE>


         --------------------
                  (1) Filed herewith.
                  (2) Management contract or agreement.

    (b)  REPORTS ON FORM 8-K

         No reports on Form 8-K were filed for the three months ended December
31, 1999.

                                     23

<PAGE>


                                   SIGNATURES

          Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.


<TABLE>
<CAPTION>


                          OEC COMPRESSION CORPORATION
<S>                       <C>
DATE:  May 14, 2000       By:  /s/ Ray C. Davis
                               -------------------------------
                               Ray C. Davis
                               Co-Chief Executive Officer, Co-Chairman of the Board


                          By:  /s/ Ray C. Davis
                               -------------------------------
                               Ray C. Davis
                               Co-Chief Executive Officer, Co-Chairman of the Board


                          By:  /s/ Jack D. Brannon
                               -------------------------------
                               Jack D. Brannon
                               Senior Vice President, Chief Financial Officer


</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.


<TABLE>
<CAPTION>


DATE:  May 14, 2000
<S>                                          <C>
/s/    Ray C. Davis                          Director, Co-Chairman of the Board, Co-Chief Executive Officer
------------------------------------
       RAY C. DAVIS

/s/    Kelcy L. Warren                       Director, Co-Chairman of the Board, Co-Chief Executive Officer
------------------------------------
       KELCY L. WARREN

/s/    Richard D. Brannon                    Director
------------------------------------
       RICHARD D. BRANNON

/s/    Matthew S. Ramsey                     Director
------------------------------------
       MATTHEW S. RAMSEY

/s/    Charles M. Butler, III                Director
------------------------------------
       CHARLES M. BUTLER, III

/s/    Dennis W. Estis                       Director
------------------------------------
       DENNIS W. ESTIS

/s/    James D. Finley                       Director
------------------------------------
       JAMES D. FINLEY

/s/    Neal A. Hawthorne                     Director
------------------------------------
       NEAL A. HAWTHORN

/s/    Clifford S. Lewis                     Director
------------------------------------
       CLIFFORD S. LEWIS

/s/    Don E. Smith                          Director
------------------------------------
       DON E. SMITH

/s/    Jon P. Stephenson                     Director
------------------------------------
       JON P. STEPHENSON


</TABLE>


                                      24

<PAGE>

<TABLE>
<CAPTION>


                                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                             PAGE
                                                                                             ----
         <S>                                                                                 <C>
         Report of independent public accountants..............................................26

         Consolidated balance sheets...........................................................28

         Consolidated statements of operations.................................................29

         Consolidated statements of changes in stockholders' equity............................30

         Consolidated statements of cash flows.................................................31

         Notes to consolidated financial statements............................................32


</TABLE>

                                           25

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors and Stockholders of
OEC Compression Corporation


         We have audited the accompanying consolidated balance sheets of OEC
Compression Corporation (an Oklahoma Corporation) as of December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of OEC Compression
Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.






                                Arthur Andersen LLP







Dallas, Texas
March 27, 2000


                                     26

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors and Stockholders of
OEC Compression Corporation


         We have audited the accompanying consolidated statements of
operations, changes in stockholders' equity and cash flows of OEC Compression
Corporation (an Oklahoma Corporation) for the year ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.

         We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
OEC Compression Corporation for the year ended December 31, 1997, in
conformity with accounting principles generally accepted in the United States.






                                PricewaterhouseCoopers LLP







Tulsa, Oklahoma
March 30, 1998


                                     27

<PAGE>


                                       OEC COMPRESSION CORPORATION
                                       CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>

                                                                                      DECEMBER 31,
                                                                                      ------------
                                                                                1999                1998
                                                                            ------------        ------------
                                                                     (IN THOUSANDS, EXCEPT SHARE AMOUNT)
<S>                                                                         <C>                 <C>
Current Assets:
   Cash and cash equivalents                                                $       405         $         7
   Accounts receivable, less allowance for doubtful accounts
     of $197 and $109 in 1999 and 1998, respectively                              2,163               3,177
   Accounts receivable-related party (Note 10)                                      255                  60
   Unbilled accounts receivable                                                     119                  72
   Prepaid Assets                                                                   151                 300
   Compressors and compressor parts inventory                                     6,193               6,293
   Other                                                                             84                  --
                                                                            ------------        ------------
     Total Current Assets                                                         9,370               9,909

Property and equipment, less depreciation of
    $18,344 and $46,289 in 1999 and 1998, respectively (Note 5)                  95,093              94,592
Interest receivable-related party (Note 10)                                          52                  30
Notes receivable-related party (Note 10)                                            332                 332

Goodwill and other intangibles, net of amortization of
    $960 in 1999 and $409 in 1998                                                 1,544               2,057
Other assets                                                                          2                   2
                                                                            ------------        ------------
Total Assets                                                                $   106,393         $   106,921
                                                                            ============        ============

Current Liabilities:
   Accounts payable and accrued liabilities                                 $     5,324         $     5,255
   Accounts payable-related party (Note 10)                                          12                  35
   Current portion of capital lease obligations (Note 7)                            195                 319
   Current portion of long-term debt (Note 6)                                     2,918                  --
                                                                            ------------        ------------
     Total Current Liabilities                                                    8,449               5,609

Long-term debt (Note 6)                                                          58,381              58,829
Capital lease obligations (Note 7)                                                1,107               1,354
Deferred income taxes (Note 8)                                                    9,802              10,216
Other                                                                                --                  89
                                                                            ------------        ------------
Total Liabilities                                                                77,739              76,097
                                                                            ------------        ------------

Minority interest                                                                    --               2,032

Stockholders' Equity:
   Preferred stock, $1.00 par value, 1,000,000
     Shares authorized, none issued                                                  --                  --
   Common stock, $.01 par value, 60,000,000 shares authorized,
     29,171,211 and 29,171,211 shares issued with 28,986,711
     and 29,162,044 shares outstanding in 1999 and 1998, respectively               291                 291
   Additional paid-in capital                                                    31,841              31,841
   Accumulated deficit                                                           (3,210)             (3,331)
   Treasury stock, at cost (184,500 and 9,167 shares in 1999 and 1998,
     respectively)                                                                 (268)                 (9)
                                                                            ------------        ------------
Total Stockholders' Equity                                                       28,654              28,792
                                                                            ------------        ------------
Total Liabilities and Stockholders' Equity                                  $   106,393         $   106,921
                                                                            ============        ============


</TABLE>


                             The accompanying notes are an integral part of the
                                    consolidated financial statements.


                                      28

<PAGE>

                                            OEC COMPRESSION CORPORATION
                                       CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                                 YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                                             1999        1998        1997
                                                                           --------    --------    --------
                                                                               (IN THOUSANDS, EXCEPT FOR
                                                                                    PER SHARE AMOUNTS)
<S>                                                                        <C>         <C>         <C>
Revenues:
   Compressor rentals, service and treating fees .......................   $ 23,353    $ 23,125    $ 12,363
   Compressor sales and remanufacturing ................................        405         708         979
   Oil and gas sales ...................................................      1,399       2,409       2,685
                                                                           --------    --------    --------
   Total revenues                                                            25,157      26,242      16,027
                                                                           --------    --------    --------

Operating Expenses:
   Operating costs-rentals, service and treating fees ..................      9,488       9,700       5,063
   Cost of compressor sales and remanufacturing ........................        274         672         941
   Operating costs-oil and gas .........................................        470         728         804
   Depreciation, depletion and amortization ............................      6,346       5,970       3,687
   Inventory write-down ................................................         --          --         404
   Shop closing costs ..................................................         --          --         307
  General and administrative ...........................................      3,923       4,299       4,110
  Asset Impairment (Note 4).............................................         --         162          --
                                                                           --------    --------    --------
      Total expenses....................................................     20,501      21,531      15,316
                                                                           --------    --------    --------

Income from operations..................................................      4,656       4,711         711
                                                                           --------    --------    --------

Other income (expense):
   Gain (loss) on sale of assets .......................................        276         (22)         10
   Interest and other income ...........................................         91         122          52
   Interest expense ....................................................     (5,228)     (4,536)     (1,884)
   Contingent warrant expense ..........................................         --          --      (1,440)
   Minority interest in results of oil and gas operations...............        (88)       (146)        (60)
                                                                           --------    --------    --------
                                                                             (4,949)     (4,582)     (3,322)
                                                                           --------    --------    --------

Net income (loss) before income taxes and extraordinary item ...........       (293)        129      (2,611)

Income tax (expense) benefit............................................        414         (75)        924
                                                                           --------    --------    --------

Net income (loss) before extraordinary item ............................        121          54      (1,687)

Extraordinary item:
   Write-off of unamortized debt issue costs on debt retirement
   (net of $28 tax) ....................................................         --         (42)         --
                                                                           --------    --------    --------
Net income (loss) ......................................................   $    121    $     12    $ (1,687)
                                                                           ========    ========    ========

Basic and dilutive net income (loss) before extraordinary item
   per common share ....................................................   $    .00    $    .00    $   (.07)
                                                                           ========    ========    ========

Extraordinary item .....................................................   $    .00    $    .00    $    .00
                                                                           ========    ========    ========

Basic and dilutive net income (loss) per common share ..................   $    .00    $    .00    $   (.07)
                                                                           ========    ========    ========
</TABLE>

                            The accompanying notes are an integral part of the
                                    consolidated financial statements.

                                                    29

<PAGE>

                                     OEC COMPRESSION CORPORATION
                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>


                                                                               (IN THOUSANDS)

                                                                                                           DEFERRED
                                                            ADDITIONAL      RETAINED                      EXPENSE--
                                              COMMON         PAID-IN        EARNINGS        TREASURY      CONTINGENT
                                               STOCK         CAPITAL       (DEFICIT)         STOCK         WARRANTS       TOTAL
                                            ----------     -----------    ----------     -----------    ------------   ----------
<S>                                         <C>            <C>            <C>            <C>            <C>            <C>
Balance, December 31, 1996                  $      210     $   17,692     $   (1,656)    $       (9)    $   (1,440)    $   14,797

     Exercise of stock options                       1             73             --             --             --             74

     Issuance of shares in connection
      with Ouachita acquisition
      (7.6 million shares)                          76         12,464             --             --             --         12,540

     Issuance of shares in connection
      with settlement of liability (Note 2)          3            698             --             --             --            701

     Vesting of contingent warrants                 --             --             --             --          1,440          1,440

     Warrants issued in connection
      with secured senior
      subordinated term note                        --            870             --             --             --            870

     Net loss                                       --             --         (1,687)            --             --         (1,687)
                                            ----------     ----------     ----------     ----------     ----------     ----------

Balance, December 31, 1997                         290         31,797         (3,343)            (9)            --         28,735
                                            ----------     ----------     ----------     ----------     ----------     ----------

     Exercise of stock options                       1             44             --             --             --             45

     Net Income                                     --             --             12             --             --             12
                                            ----------     ----------     ----------     ----------     ----------     ----------

Balance, December 31, 1998                         291         31,841         (3,331)            (9)            --         28,792

     Trade airplane for treasury stock              --             --             --           (259)            --           (259)

     Net Income                                     --             --            121             --             --            121
                                            ----------     ----------     ----------     ----------     ----------     ----------

Balance, December 31, 1999                  $      291      $  31,841     $   (3,210)    $     (268)    $       --     $   28,654
                                            ==========     ==========     ==========     ==========     ==========     ==========

</TABLE>


                            The accompanying notes are an integral part of the
                                   consolidated financial statements.


                                                    30

<PAGE>

                                    OEC COMPRESSION CORPORATION
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>


                              YEAR ENDED DECEMBER 31,                     1999         1998          1997
                              -----------------------                     ----         ----          ----
                                                                                  (IN THOUSANDS)
<S>                                                                  <C>            <C>           <C>
Cash flows from operating activities:
   Net income (loss)                                                 $       121    $       12    $    (1,687)
   Adjustments to reconcile net income (loss)
    to net cash provided by operating activities:
   Depletion, depreciation, and amortization                               6,346         5,970          3,687
   Deferred taxes                                                           (414)          102           (709)
   Contingent warrant expense                                                 --            --          1,440
   Minority interest oil and gas operations                                   88           146             60
   Accounts and notes receivable                                            (185)         (535)        (1,131)
   Compressors and parts inventory                                           101        (2,706)          (209)
   Accounts payable and accrued liabilities                                  906           272            720
   Other                                                                    (279)          465             27
                                                                     -----------    ----------    -----------
       Net cash provided by operating activities                           6,684         3,726          2,198
                                                                     -----------    ----------    -----------

Cash flows from investing activities:
    Acquisitions of equipment                                            (11,965)      (21,056)       (11,788)
    Acquisition of subsidiary                                                 --            --        (23,831)
    Proceeds from sale assets                                              2,202           846            353
    Additions to oil and gas properties                                     (108)       (2,241)          (877)
    Increase in goodwill and other assets                                    (48)       (1,275)          (525)
                                                                     -----------    ----------    -----------
       Net cash used in investing activities                              (9,919)      (23,726)       (36,668)
                                                                     -----------    ----------    -----------

Cash flows from financing activities:
    Payments of capital lease obligations                                   (371)         (420)          (144)
    Note due to proceeds from equipment sale                               2,000            --             --
    Proceeds of long-term debt                                             2,477        45,321         40,336
    Payments on long-term debt                                              (473)      (25,040)        (5,805)
    Proceeds of stock issuance                                                --            45             74
    Minority interest capital contributions
                                                                              --           100             --
                                                                     -----------    ----------    -----------
        Net cash provided by financing activities                          3,633        20,006         34,461
                                                                     -----------    ----------    -----------

Net increase (decrease) in cash                                              398             6             (9)
Cash beginning of year                                                         7             1             10
                                                                     -----------    ----------    -----------
Cash end of year                                                     $       405    $        7    $         1
                                                                     ===========    ==========    ===========

Supplemental disclosure
    Interest paid                                                    $     5,074    $    4,062    $     1,646
                                                                     ===========    ==========    ===========
    Income taxes paid                                                $        --    $       --    $        35
                                                                     ===========    ==========    ===========
Non-cash investing and financing activities:
     Acquisition of subsidiary
       Capital leases assumed                                        $        --    $       --    $       608
       Issuance of common stock                                               --            --         12,540
     Issue warrants for secured senior term note                              --            --            870
     Issuance of common stock in connection
       With settlement of liability (Note 2)                                  --            --            701
     Contributions by minority interest owner                                 --           368          1,358
     Capital leases of compressor equipment                                   --         1,629             --


</TABLE>


                            The accompanying notes are an integral part of the
                                   consolidated financial statements.

                                                    31

<PAGE>

                           OEC COMPRESSION CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

         OEC Compression Corporation (an Oklahoma Corporation), formerly
Equity Compression Services Corporation, formerly Hawkins Energy Corporation
(the "Company") is engaged in the leasing, remanufacturing and direct sale of
gas compression equipment to operators of producing natural gas wells and gas
gathering systems and in the production of natural gas and oil. Its principal
geographical operating areas lie within the states of Alabama, Mississippi,
Louisiana, Oklahoma, Arkansas, New Mexico, Kansas and Texas.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Ouachita Energy Corporation
("Ouachita"), Equity Leasing Corporation, Sunterra Energy Corporation
("Sunterra") and through July 2, 1999, its 82% owned oil and gas venture
Sunterra Petroleum Company, L.L.C. ("Sunterra L.L.C.") which was sold. All
intercompany transactions have been eliminated.

CASH EQUIVALENTS

         The Company includes in cash equivalents all investments with
original maturities of three months or less at the date of purchase, which are
readily convertible into known amounts of cash.

COMPRESSORS AND COMPRESSOR PARTS INVENTORY

         Compressors and compressor parts are carried at the lower of cost or
market, using specific identification of costs and weighted average costs,
respectively. At December 31, compressor and compressor parts inventory
consisted of:


<TABLE>
<CAPTION>

                                                      1999                     1998
                                                    ---------                ---------
                                                              (IN THOUSANDS)
<S>                                                 <C>                      <C>
Compressor Work in Progress                         $   1,049                $   2,844
Cylinders                                               1,522                    1,475
Engines                                                   770                      763
Parts and Supplies                                      2,852                    1,211
                                                    ---------                ---------
                                                    $   6,193                $   6,293
                                                    =========                =========


</TABLE>



OIL AND GAS OPERATIONS

         During October 1997, the Company through its wholly owned subsidiary,
Sunterra, entered into a venture with Prize Petroleum, L.L.C. ("Prize") of
Tulsa, Oklahoma, to form Sunterra L.L.C. Sunterra L.L.C. was capitalized with
all of the Company's oil and gas properties and oil and gas properties
contributed by Prize. At June 30, 1999, the Company had an approximate 82%
ownership in Sunterra L.L.C. The Company had effective control over the
operations of Sunterra L.L.C. and has consolidated its results since its
formation, October 1, 1997 until the sale of its interest in the Sunterra
L.L.C. to Prize on July 2, 1999.

         On July 2, 1999, Sunterra sold 100% of its interest in Sunterra
L.L.C. to Prize. Sunterra received $1 million in cash and the Will-O-Mills gas
treating plant located in southwest Texas. The Will-O-Mills gas treating plant
is a 300 gpm amine plant, which extracts carbon dioxide, and minor amounts of
hydrogen sulfide from natural gas flowed to the plant by area producers under
long-term treating contracts. The Sunterra L.L.C sale effectively removed the
Company from the oil and gas production business.

         Prior to the sale of the Sunterra L.L.C. the Company accounted for
its oil and gas exploration and development activities on the full cost method
of accounting prescribed by the Securities and Exchange Commission ("SEC").
Accordingly, all productive and non-productive costs incurred in connection
with the acquisition, exploration and development of oil and gas reserves are
capitalized

                                     32

<PAGE>

and amortized using the units-of-production method based on proved oil and gas
reserves. Beginning in 1997, the Company's oil and gas reserves were estimated
by a petroleum engineer who was an employee of the Company.

           The depreciation, depletion and amortization rates were $.62, $.51
and $.43 per equivalent mcf produced in 1999, 1998 and 1997, respectively. In
the event the unamortized cost of oil and gas properties being amortized
exceeds the full-cost ceiling as defined by the SEC, the excess is charged to
expense in the period during which such excess occurs.

         Sales and abandonments of properties were accounted for as
adjustments of capitalized costs with no gain or loss recognized unless a
significant amount of reserves were involved. Since all of the Company's oil
and gas properties were located in the United States, a single cost center was
used with one amortization base.

HEDGING ACTIVITY

         As a part of its risk management program, Sunterra L.L.C. entered
into non-traded natural gas price swap contracts. Gains and losses related to
the contracts were deferred and recognized in income when the hedging
transaction occurs. Prior to the sale of the oil and gas properties, Sunterra
L.L.C. had recognized a gain of $137,000 due to hedging activity.

GOODWILL AND OTHER INTANGIBLES

         Goodwill is amortized using the straight-line method over the
estimated benefit periods of 24 to 30 years. Non-compete agreements are
amortized using the straight-line method over the life of the agreements of
one to three years. Debt issue costs are amortized using the straight-line
method over the life of the agreements ranging from 7 to 10 years.

CASH DEFICIT

         On March 10, 1998, the Company replaced its existing senior bank
credit facility with a new senior bank credit facility. The prior facility
automatically funded or withdrew the balance in the Company's bank account
daily. The new facility requires the Company to formally request advances to
fund operations. This change has at times caused the Company to incur a cash
deficit for financial reporting purposes due to outstanding checks, which will
be funded through cash flow from operations or borrowings from the new
facility. This cash deficit was necessary to maximize the Company's cash flow
and in no way impairs the Company's ability to fund its daily operations. The
cash deficit is included in the Company's Balance Sheet in the Current
Liabilities section under the caption "accounts payable and accrued
liabilities." At December 31, 1998, the Company had outstanding checks in
excess of its cash balance of approximately $1.3 million. The aforementioned
cash strategy was discontinued in 1999 when the bank facility was fully
funded. At December 31, 1999, the Company had a positive cash balance.

INCOME TAXES

         The Company uses Statement of Financial Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes." This standard requires the measurement
of deferred tax assets for deductible temporary differences and deferred tax
liabilities for taxable temporary differences. Measurement of current and
deferred tax liabilities and assets is based on provisions of enacted tax law;
the effects of future changes in tax laws or rates are not included in the
measurement. Deferred tax liabilities primarily result from the recognition of
depreciation, depletion and amortization in different periods for financial
reporting and tax purposes. Income tax benefit or expense is the tax payable
for the current year and the change during that year in deferred tax assets
and liabilities.

STOCK-BASED COMPENSATION

         The Company applies Accounting Principles Board ("APB") Opinion No.
25 in accounting for its stock option plans. Under this standard, no
compensation expense is recognized for grants of options which include an
exercise price equal to or greater than the market price of the stock on the
date of grant. Accordingly, based on the Company's grants in 1999, 1998 and
1997, no compensation expense has been recognized. As provided by SFAS No. 123
"Accounting for Stock-Based Compensation," the Company has disclosed the pro
forma effects of recording compensation for such option grants based on their
fair value in Note 9 to the financial statements.

CONCENTRATIONS OF CREDIT RISK

         Financial instruments which subject the Company to concentrations of
credit risk consist primarily of trade receivables with a variety of oil and
gas companies. The Company generally does not require collateral related to
receivables. Such credit risk is considered by management to be limited due to
the large number of customers comprising the Company's customer base.

                                     33

<PAGE>

         Financial instruments, which are potentially subject to
concentrations of credit risk, consist principally of cash, cash equivalents
and accounts receivable. Cash and cash equivalents are placed with high credit
quality financial institutions to minimize risk. The carrying amounts of these
instruments approximate fair value because of their short maturities.

         Fair values of the Company's financial instruments are estimated
through a combination of management's estimates and by reference to quoted
prices from market sources and financial institutions, if available. As of
December 31, 1999, the fair market value of existing debt was equal to the
carrying value of the existing debt.

CAPITAL RESOURCES

        Although, the Company has generated income and cash flow from
operations in 1999 and 1998, the Company has funded its fleet expansion
capital expenditures through borrowings under its senior credit facility. As
of December 31, 1999, the Company has no availability under its senior credit
facility. The Company believes it could raise additional capital through a
private or public equity or debt financing; however, the Company cannot
assure that such financing would be available, or available under acceptable
terms. If such financing proved unavailable, the Company believes that a
significant reduction in capital expenditure related to the expansion of its
compressor fleet would allow the Company to continue as a going concern
through 2000.

         On January 4, 2000, the Company announced that the previously
announced merger negotiations with Energy Transfer Company had been
terminated. Further, the Company's Board of Directors had authorized certain
board members to interview and engage an investment banker to explore
strategic alternatives and steps to maximize shareholder value. The Company
formally engaged a major investment bank in February 2000, for this purpose.
All strategic alternatives are being explored including the possible sale of
the Company.

SHOP CLOSING COSTS

         In the fourth quarter of 1997, the Company recognized a $307,000
charge in connection with the closure of its Oklahoma City, Oklahoma, Kilgore,
Texas and Columbia, Mississippi shop facilities. The charge was comprised of
provisions for approximately $143,000 related to severance costs,
approximately $130,000 for moving and relocation costs, approximately $23,000
for transfer bonuses and approximately $11,000 related to the loss on sale of
the Columbia, Mississippi facility. Approximately $34,000 of the costs were
paid in 1997. The remaining $273,000 of costs were paid during 1998.

ACCOUNTING ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

EARNINGS PER SHARE

         Approximately 10,897,000 of common stock options and warrants
outstanding at December 31, 1997, were excluded from the computation of
dilutive earnings per share ("EPS") because their effect on EPS would have
been anti-dilutive for that period. Basic EPS is computed based on weighted
average number of shares of common stock outstanding during the period.
Dilutive EPS is computed based on weighted average number of shares of common
stock outstanding during the period adjusted for the effect of dilutive
securities.

         The following is a reconciliation of basic and dilutive EPS
computations:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                             -----------------------
                                                                    1999                1998                1997
                                                                    ----                ----                ----
                                                                                   (IN THOUSANDS)
<S>                                                               <C>                 <C>                <C>
Basic:
    Net Income (loss)                                               $121                 $12             $(1,687)
    Weighted average shares of
       common stock outstanding                                   29,026              29,154              24,196
                                                                  ------              ------              ------
    Basic EPS                                                       $.00                $.00               $(.07)
                                                                  ======              ======              ======

Effect of dilutive securities:
     Warrants                                                      1,518               4,431                  --


                                                    34

<PAGE>

     Common stock options                                             88                 240                  --
                                                                  ------              ------              ------
                                                                   1,606               4,671                  --
Dilutive:
      Net income (loss)                                             $121                 $12             $(1,687)
      Weighted average share of
          common stock outstanding
           and dilutive securities                                30,632              33,825              24,196
                                                                  ------              ------              ------
       Dilutive EPS                                                $ .00               $ .00               $(.07)
                                                                  ======              ======              ======
</TABLE>

RECLASSIFICATIONS

         Certain prior year amounts have been reclassified to conform with the
current year presentation.

ISSUED ACCOUNTING PRONOUNCEMENTS

         In December 1997, the Company adopted SFAS No. 129, "Disclosure of
Information about Capital Structure," resulting in no material impact. In
addition, in June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal years beginning after December 15, 1997. These
statements, were adopted in 1998 and did not have a material effect on the
Company's financial position or results of operations.

         In December 1998, the Company adopted Statement of Position ("SOP")
98-5 "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires cost
of start-up activities and organization costs to be expensed as incurred. The
Company incurred a charge-off of unamortized original organizational costs
upon adoption of SOP 98-5. The effect of adopting SOP 98-5 decreased the 1998
income from operations, net income and income per share (dilutive) by
approximately $112,000, $69,000 and $.00, respectively.

         In June 1999, the FASB issued SFA No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities," which is effective for all
fiscal years beginning after June 15, 2000. If the Company had adopted SFAS
No. 133 during 1999, there would be no effect on the Company's financial
statements as the Company had no hedges outstanding at December 31, 1999.
Although the future impact of adopting SFAS 133 has not been determined yet,
the Company does not believe the impact will be material.

NOTE 2    ACQUISITION OF SUBSIDIARY

          On August 6, 1997, the Company completed the acquisition of 100% of
the common stock of Ouachita and the majority of the assets of both Ouachita
Compression Group, LLC and Ouachita Energy Partners, LTD. Under the terms of
the acquisition the Ouachita companies' shareholders received 7.6 million
shares of the Company's common stock valued at $12,540,000, and approximately
$24 million in cash and assumption of debt. The acquisition was accounted for
using the purchase method of accounting and accordingly, the results of
operations of Ouachita are included in the Company's results of operations
since the date of acquisition. The aggregate purchase price of $36,560,000 has
been allocated as follows (in thousands):

<TABLE>

<S>                                                           <C>
Current assets                                                 $3,305
Compressor equipment                                           41,730
Buildings and equipment                                         2,210
Current liabilities                                            (2,507)
Deferred income tax liability                                  (8,178)
                                                              -------
                                                              $36,560
                                                              =======


</TABLE>

          The following unaudited pro forma consolidated results of operations
for the year ended December 31, 1997, assuming the acquisition occurred as of
January 1, 1997, are as follows:

<TABLE>
<CAPTION>
                                                                    1997
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S>                                                                                  <C>
Revenue                                                                              $23,600
Net loss                                                                             $(3,700)
Loss per share                                                                         $(.13)

</TABLE>

         A liability to the former owner of Ouachita totaling approximately
$701,000 which was assumed in the acquisition was subsequently settled by the
issuance of an additional 286,976 shares of the Company's common stock.


                                     35

<PAGE>

NOTE 3   SALE OF COMMON STOCK AND ISSUANCE OF CONTINGENT WARRANTS

         Effective December 19, 1996, the Company sold to HACL, Ltd., a
private investment group, 8,000,000 shares of its common stock and warrants
which, upon satisfying certain vesting requirements, entitle the purchase of
an additional 8,000,000 shares of its common stock at a price of $.91 per
share, for aggregate consideration of $4,400,000. The Company reported the
cash consideration received, net of related costs, of $4,400,000 as an
addition to common stock and paid-in capital. The "fair value" of the warrants
was estimated by an independent valuation firm to be $1,440,000, which the
Company reported as an addition to paid-in capital offset by a deferred
expense contra-equity account. A committee of the Board of Directors
determined that the warrants fully vested during the third quarter of 1997.
Accordingly, the $1,440,000 was expensed in the third quarter of 1997. The
warrants for the corresponding 8,000,000 shares of common stock have not been
exercised as of December 31, 1999.

NOTE 4   PROVISION TO REDUCE THE CARRYING VALUE OF OTHER EQUIPMENT

         In December 1998 the Company as part of a Settlement Agreement (Note
10) agreed to exchange an airplane, owned by the Company, for shares of the
Company's common stock and value related to a truck. It was determined during
negotiations that the airplane be reduced to its estimated fair value of
approximately $290,000, resulting in a provision to reduce the carrying value of
the airplane of $162,000.











                                     36

<PAGE>

NOTE 5   PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                 -----------------------
                                                                    1999           1998
                                                                ----------     ----------
                                                                      (IN THOUSANDS)
<S>                                                             <C>            <C>
Land and building                                               $    1,938     $    1,846
Oil and gas properties, full cost method                                --         39,401
Compressor equipment                                               109,401         95,763
Other equipment                                                      2,098          3,871
                                                                ----------     ----------
                                                                   113,437        140,881
Less accumulated depreciation, depletion and
    amortization                                                    18,344         46,289
                                                                ----------     ----------
Net property and equipment                                      $   95,093     $   94,592
                                                                ==========     ==========


</TABLE>

         Compressor equipment held by the Company for rental purposes is
stated at cost and depreciated over the serviceable life of the equipment.
Leased compressor equipment is depreciated on a straight-line basis over an
estimated useful life of 12 to 20 years. Due to the nature of compressor
equipment no depreciation is recorded for idle equipment not under contract.
Depreciation is resumed when the compressor equipment is contracted.
Associated with its acquisition of Ouachita, the Company changed its estimate
of useful lives for certain of its compressor equipment to 15 to 20 years with
capitalized overhauls on compressor rental equipment depreciated over five
years. The effect of these changes decreased the 1997 loss from operations,
net loss and loss per share (dilutive) by approximately $265,000, $165,000 and
$.01, respectively. Buildings and other equipment are stated at cost and
depreciated over their estimated useful lives of 30 years and 5 years,
respectively.

         Repairs and maintenance are charged to expense as incurred and major
overhauls and betterments are capitalized. Upon sale or retirement of
equipment, the cost of the equipment disposed of and the related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
reflected in operations.

         Long-lived assets are evaluated for impairment whenever events or
changes and circumstances indicate that the carrying value of an asset may not
be recoverable. Assets determined to be impaired based on estimated
undiscounted future net cash flows are reduced to estimated fair value.
Changes in such estimates could cause the Company to reduce the carrying value
of its property and equipment and goodwill.

         During 1999, the Company completed purchase leasebacks, where the
Company bought compressors from our customers then leased the compressors back
to its customers. The purchase leasebacks accounted for the expenditure of
approximately $1.5 million and an increase in horsepower of over 10,000 with
lease terms from six months to five years.







                                     37

<PAGE>

NOTE 6    LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                  DECEMBER 31,
                                                                                  ------------
LONG-TERM DEBT CONSISTS OF THE FOLLOWING:                                     1999          1998
                                                                          ----------     ----------
                                                                              (IN THOUSANDS)
<S>                                                                       <C>            <C>
Revolving line of credit due July 2001 (interest on loans at LIBOR and
    Prime) (a) (d)                                                        $   40,000     $   38,013
8.25% Revolving line of credit (a)                                                --             --
8.25% Revolving line of credit due December 1999 (b) (d)                          --          1,617
Secured Senior Subordinated Term Note due July 2007 (c) (d)                   14,256         14,199
Senior Floating Rate Secured Term Note due July 2004
    (interest at LIBOR), (c) (d)                                               5,000          5,000
Notes payable other                                                            2,044             --
                                                                          ----------     ----------
Total debt                                                                    61,300         58,829
Less current portion                                                           2,918             --
                                                                          ----------     ----------
Total long-term debt                                                      $   58,382     $   58,829
                                                                          ==========     ==========
</TABLE>

    (a)  On March 10, 1998, the Company replaced its previously existing $20
         million senior bank credit facility with a new senior bank credit
         facility. The initial maximum commitment was $40 million, which can be
         expanded to $60 million with the future addition of other
         participating financial institutions. The facility is a borrowing base
         revolver maturing in July, 2001, and due in its entirety at that
         time. The December 31, 1999, borrowing base of $47 million exceeds the
         $40 million commitment. Interest on the new facility is comprised of
         conforming and non-conforming borrowing bases which accrue interest at
         LIBOR plus 1.75% and LIBOR plus 2.25%, respectively. Initial
         borrowings are at Prime until converted to LIBOR loans. At December
         31, 1999, the average interest rate on outstanding loans was 7.91%.
         The credit facility is collateralized by substantially all of the
         assets of the Company with the exception of the Company's gas treating
         plant. At December 31, 1999 the current available portion was zero.
         Beginning in July 2000, the $40 million commitment will decrease by
         $150,000 per month until due in July 2001.

    (b)  In December 1997, Sunterra L.L.C., entered into a new $10 million bank
         revolving credit facility with borrowings limited to a borrowing base
         determined on the value of the underlying oil and gas reserves. This
         facility was assumed by Prize when they acquired the oil and gas
         properties.

    (c)  In July 1997, the Company entered into senior subordinated term note
         agreements with The Prudential Insurance Company of North America
         ("Prudential") for $15 million and $5 million. The $15 million term
         note agreement contained a warrant purchase agreement authorizing
         Prudential to purchase up to 1 million shares of the Company's common
         stock at an initial exercise price of $2.80 per share until the
         termination date of the related term note. The fair value of the
         warrants, $870,000, was determined using the Black-Scholes model and
         was reported as an addition to paid-in capital and as a discount on
         the notes. The resulting term note amount of $14,130,000 will be
         accreted over the ten-year term using its effective interest rate of
         11.14%. The Company's cash payout over the term of the notes is at the
         stated rate of 10.15%. The warrants were adjusted to an exercise price
         of $1.45 on July 2, 1999 and again on December 1, 1999 the warrants
         were repriced to an exercise price of $1.00 to garnish waivers of the
         debt covenants. The $5 million note accrues interest at LIBOR plus
         2.25%. At December 31, 1999, the rate was 8.73%.

    (d)  Covenants related to the debt agreements include the maintenance of
         specified levels of working capital, tangible net worth and debt
         service ratio, as defined by the agreements. Additionally, the
         agreements prohibit the payment of dividends and place limitations on
         the repurchase of shares of the Company's stock and the incurrence of
         new borrowings. During 1999, the Company was not in compliance with
         the interest coverage, G&A coverage, and EBITDA multiple covenants of
         its debt agreements, which were waived or modified by the lender.

        Long-term debt maturities as of December 31, 1999, are $2,918,000,
$39,126,000, $0, $0 and $5,000,000 in 2000, 2001, 2002, 2003 and 2004,
respectively, with a remainder of $14,256,000 due in subsequent years. Based
on the interest rates currently available to the Company for borrowings with
similar terms and maturities, the long-term debt at December 31, 1999,
approximates fair value. There was not any interest capitalized in 1999. The
Company has generated income and cash flow from operations in 1999 and 1998,
the Company has funded its fleet expansion capital expenditures through
borrowings under its senior credit facility. As of December 31, 1999, the
Company has no availability under its senior credit facility. The Company
believes it could raise additional capital through a private or public equity
or debt financing; however, the Company cannot assure that such financing
would be available, or available under acceptable terms. If such financing
proved unavailable, the Company believes that a significant


                                     38

<PAGE>

reduction in capital expenditure related to the expansion of its compressor
fleet would allow the Company to continue as a going concern through 2000.

























                                     39

<PAGE>

NOTE 7   CAPITAL LEASES

         The Company has compression equipment and vehicles under capital
lease agreements with a cost of $1,699,000 and accumulated amortization of
$394,000.

Future minimum lease payments for the above assets under capital leases at
December 31, 1999, are as follows (in thousands):

<TABLE>

              <S>                                               <C>
              2000                                              $ 311
              2001                                                306
              2002                                                516
              2003                                                463
                                                               ------
              Total minimum obligations                         1,596
              Interest                                           (294)
                                                               ------
              Minimum obligations, net                          1,302
              Current portion                                    (195)
                                                               ------
              Long term portion                                $1,107
                                                               ======
</TABLE>

NOTE 8   INCOME TAXES

         Consolidated income tax (benefit) expense for each of the three years
in the period ended December 31, 1999, consists of the following components:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                     -----------------------
                                                   1999        1998       1997
                                                   ----        ----       ----
                                                          (IN THOUSANDS)
<S>                                               <C>          <C>       <C>
Current provision expense (benefit)               $  --         $--      $(182)
Deferred expense (benefit)                         (414)         75       (742)
                                                  ------        ---      ------

Total income tax expense (benefit)                $(414)        $75      $(924)
                                                  ======        ===      ======
</TABLE>

          The Company's effective tax rate on pre-tax income differs from the
U.S. federal statutory regular tax rate as follows:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                                       -----------------------
                                                   1999        1998        1997
                                                   ----        ----        ----
<S>                                               <C>          <C>         <C>
U.S. statutory regular tax rate                    (34)%         34%        (34)%
State taxes                                         (4)%          4%         (4)%
Goodwill and other                                  (9)%         20%          2 %
Sale of oil and gas properties                     (94)%         --%         -- %
                                                  ------         ---       ------
Total                                             (141)%         58%        (36)%
                                                  ======         ===       =====
</TABLE>

Deferred tax assets and liabilities are comprised of the following at December
31:

<TABLE>
<CAPTION>
                                                                   1999           1998           1997
                                                                ----------     ----------     ----------
                                                                             (IN THOUSANDS)

<S>                                                             <C>            <C>            <C>
Deferred tax assets:
   Allowances for losses                                        $       38     $       41     $       29
   Net operating loss carryforward                                   8,588          6,175          3,132
   Alternative minimum tax credit carryforward                         610            602            602
   Warrant expense deferred for income tax purposes                    547            547            547
   Miscellaneous gain                                                   16             --             --
   Accounting method change for tax due to acquisition                 137            274            411
                                                                ----------     ----------     ----------
       Gross deferred tax assets                                     9,936          7,639          4,721

Deferred tax liabilities:
   Property and equipment - depreciation
       Depletion and amortization                                   19,738         17,855         14,863
                                                                ----------     ----------     ----------
       Gross deferred tax liabilities                               19,738         17,855         14,863
                                                                ----------     ----------     ----------

Net deferred tax liability                                      $    9,802     $   10,216     $   10,142
                                                                ==========     ==========     ==========
</TABLE>

                                           40

<PAGE>

         At December 31, 1999, the Company had net operating loss
carryforwards for regular tax purposes of $22,601,000, which expire in 2009
through 2019.

NOTE 9   COMPENSATION PLANS

         EMPLOYEE STOCK OPTION PLAN. On August 8, 1989, the Board of Directors
of the Company adopted and its stockholders approved an Employee Stock Option
Plan (the "Stock Option Plan") which became effective on that date. An
aggregate of 130,000 shares of common stock were initially available for sale
upon exercise of options granted under the Stock Option Plan, provided that
the number of shares available for options which may be granted under the
Stock Option Plan will automatically be increased without action of the
directors or stockholders of the Company to an amount equal to (when added to
the number of shares of common stock subject to all other options granted by
the Company) 8% of the issued and outstanding shares of common stock upon each
issuance of shares of common stock occurring after February 28, 1990 (other
than issuance of shares upon the exercise of options granted under the Stock
Option Plan). The Board of Directors may make authorized but unissued common
stock available for the exercise of options or it may utilize shares held in
treasury. On February 4, 1999, the Board of Directors approved the issuance of
198,874 stock options under the Stock Option Plan. The Stock Option Plan is
not subject to the provisions of the Employee Retirement Income Security Act
of 1974 and the options are not "incentive stock options," as such term is
defined in Internal Revenue Code Section 422A. As of December 31, 1999,
options to acquire 1,205,882 shares of common stock at prices ranging from
$.50 to $2.25 were outstanding.

         DIRECTOR STOCK OPTION PLANS. On August 8, 1989, the Board of
Directors adopted and the stockholders approved a Director Stock Option Plan
(the "1989 Director Plan") which became effective on that date. An aggregate
of 170,000 shares of common stock are available for sale upon exercise of
options granted under the 1989 Director Plan. At December 31, 1999, options
for 30,000 shares at a price of $2.50 were exercisable. As of December 31,
1999, no options had been exercised. The 1989 Director Plan is not subject to
the provisions of the Employee Retirement Income Security Act of 1974 and the
options will not be "incentive stock options," as such term is defined in
Internal Revenue Code Section 422A.

         On May 25, 1994, the Board of Directors adopted and the stockholders
approved the 1994 Director Stock Option Plan which became effective on that
date. Options to acquire an aggregate of 355,000 shares of common stock were
initially granted; however, options to acquire 280,000 shares of common stock
were surrendered for cancellation in 1996. At December 31, 1999, options for
75,000 shares at a price of $1.40 were exercisable. As of December 31, 1999,
no options had been exercised. These options expire on May 24, 2004.

         On March 27, 1996, the Board of Directors adopted and on May 29,
1996, the stockholders approved the Director Stock Plan, which became
effective on the date of its approval by the Company's stockholders. Under the
Director Stock Plan, non-qualified stock options may be issued to non-employee
directors of the Company. An aggregate of 500,000 shares of common stock are
reserved for issuance upon the exercise of options granted under the Director
Stock Plan. The Director Stock Plan provided for, effective upon its approval
by the Company's stockholders, the automatic grant to eligible directors of an
option to purchase either (i) 50,000 shares of common stock, if such eligible
director had been an employee of the Company at any time, or (ii) 17,500
shares of common stock, if such eligible director had never been an employee
of the Company. On each anniversary of each eligible director's election to
the Board for the term as a director which he or she is currently serving,
each such director will be granted an option to purchase 6,666 shares of
common stock. In addition, upon an eligible director's initial election or
appointment to the Board, such director will receive the grant of an option to
purchase 10,000 shares of common stock. At December 31, 1999, options to
acquire 302,488 shares of common stock at prices ranging from $.56 to $2.31
were outstanding. As of December 31, 1999, no options issued under the
Director Stock Plan had been exercised. The Director Stock Plan is not subject
to any of the provisions of the Employee Retirement Income Security Act of
1974 and the options will not be "incentive stock options," as such term is
defined in Internal Revenue Code Section 422A.





                                     41

<PAGE>

         Activity pertaining to the Company's employee and director stock
option plans is as follows:

<TABLE>
<CAPTION>
                                                                               NUMBER OF          WEIGHTED AVERAGE
                                                                                SHARES             EXERCISE PRICE
                                                                               ---------          ----------------
<S>                                                                     <C>                       <C>
Outstanding at December 31, 1996                                                 637,500                  .81
Granted                                                                        1,404,240                 1.86
Exercised                                                                       (145,000)                (.51)
Canceled                                                                              --                   --
                                                                               ---------
Outstanding at December 31, 1997                                               1,896,740                 1.61

Granted                                                                          163,664                 1.61
Exercised                                                                        (90,000)                (.50)
Canceled                                                                        (274,795)               (1.98)
                                                                               ---------
Outstanding at December 31, 1998                                               1,695,609               $ 1.64

Granted                                                                          258,848                 1.09
Exercised                                                                             --                   --
Canceled                                                                        (341,087)               (1.70)
                                                                               ---------
Outstanding at December 31, 1999                                               1,613,370               $ 1.55
                                                                               =========
</TABLE>

<TABLE>
<CAPTION>
                               OUTSTANDING OPTIONS

                                                                  WEIGHTED                   WEIGHTED
                                         NUMBER                    AVERAGE                    AVERAGE
              EXERCISE                     OF                     REMAINING                  EXERCISE
               PRICES                    SHARES               CONTRACTUAL LIFE*                PRICE
              --------                   ------               ----------------               --------
        <S>                             <C>                   <C>                            <C>

        $   .50 - 1.00                  371,574                 16.5  Years                  $    .69
        $  1.00 - 2.00                  595,994                 25.6  Years                  $   1.35
        $ 2.00 - 2 .50                  645,802                 35.4  Years                  $   2.23

</TABLE>

      As of December 31, 1999, options on 1,069,532 shares were exercisable.
    * Upon termination of employment or board service the option term becomes
         four years from date of termination.

The Company applies APB Opinion No. 25 in accounting for its employee and
director stock option plans. Accordingly, based on the nature of the Company's
grants of options, no compensation cost has been recognized in 1999, 1998, or
1997. Had compensation been determined on the basis of fair value pursuant to
SFAS No. 123, "Accounting for Stock-Based Compensation" net loss per share
would have been as follows at December 31:

<TABLE>
<CAPTION>
                                                     1999              1998             1997
                                                     ----              ----             ----
<S>                                                <C>               <C>             <C>
Net income (loss) (in thousands)
   As reported                                      $ 121               $12           $(1,687)
   Pro forma                                        $(151)            $(294)          $(1,805)

Loss per share (dilutive)
   As reported                                       $.00              $.00             $(.07)
   Pro forma                                        $(.01)            $(.01)            $(.07)

</TABLE>

         The fair value of each option granted is estimated using the
Black-Scholes model. The Company's estimated stock volatility was 68%, 75%,
and 86% for 1999, 1998, and 1997, respectively, based on previous stock
performance. Dividend yield was estimated to remain at zero with a risk-free
interest rate of 6% for 1997 through 1999. Expected life was estimated at four
to eight years based on prior experience depending on the vesting periods
involved and the make up of participating employees within each grant. The
weighted average fair value of options granted during 1999, 1998, and 1997, as
estimated using the Black-Scholes option pricing model, was $1.12, $1.31, and
$1.06 respectively.

         EMPLOYEE BENEFIT PLAN. Substantially all of the Company's employees
are covered by a defined contribution 401(k) plan adopted in 1991. The Company
matches 50% of the employee contributions up to a limit of 4% of employee
annual earnings. All


                                     42

<PAGE>

matching contributions are made in Company stock. Total expense related to the
plan amounted to $79,000 in 1999, $87,000 in 1998, $50,000 in 1997.

         OTHER. Non-qualified options for 15,000 shares at a price of $2.50
per share were granted to a former employee of the Company in 1990, all of
which are currently exercisable with an expiration date of January 2030.

NOTE 10  TRANSACTIONS WITH RELATED PARTIES

         The Company transacts business with certain companies, which are
directly controlled by members of the Company's Board of Directors and
employees. The terms of these transactions are equivalent to the terms of
transactions conducted with non-related parties.

         On December 16, 1998, the Company, Dennis Estis, the two other
shareholders who granted a proxy to Mr. Estis and certain other parties
entered into a Settlement Agreement. Among other things, the Settlement
Agreement (i) prohibits Mr. Estis from participating in any proxy solicitation
relating to certain actions, (ii) requires termination of the proxies granted
to him by the two other shareholders, (iii) dismissed a lawsuit filed by Mr.
Estis, (iv) released certain claims between the parties, (v) provided for a
"standstill" agreement until June 30, 1999, (subject to possible extension and
reinstatement as described below) prohibiting Mr. Estis from participating in
enumerated actions relating to control of the Company and (vi) requires the
Company to reimburse Mr. Estis for certain of his out-of-pocket expenses. The
Company has agreed to use its best effort to sell or assist Mr. Estis to sell
at least one-half of his shares of common Stock at $2.00 or more per share. If
such a sale is not completed prior to June 30, 2000, then Mr. Estis'
non-competition agreement shall be terminated except as to Mr. Estis'
agreement not to solicit or hire employees of the Company. If the sale by Mr.
Estis occurs prior to December 31, 2001, then the standstill agreement
described above will be extended or reinstated, as the case may be, through
December 31, 2001. As part of this settlement, Mr. Estis, in exchange for
shares of the Company's common stock and the value of a truck, purchased an
airplane from the Company. In closing this transaction the Company incurred an
impairment of $162,000 on the airplane.

         Through its acquisition of Ouachita, the Company acquired note
receivables of approximately $332,000 from the former owners of Ouachita, who
is now a director of the Company and another party. Interest receivable
related to these notes at December 31, 1999, 1998 and 1997, was approximately
$52,000, $30,000 and $9,000, respectively. Interest on these notes accrues at
the rate of 6.5% and is payable when the note matures.

         On December 31, 1997, the Company sold its facility located in
Columbia, Mississippi to a current member of the Company's Board of Directors.
The Company received $316,000 in cash resulting in a loss of $11,000. During
1999, the Company remitted payments to this related-party totaling
approximately $499,000 for service work on compression component parts at this
facility. The Company owed approximately $12,000 to the director related to
the facility at December 31, 1999.

         The Company maintains a rent and expense sharing agreement with an
affiliate. At December 31, 1999, 1998 and 1997, the Company was owed
approximately $ 65,000, $40,000 and $11,000, respectively, from the affiliate.

         The Company earned compressor rental revenues from affiliates
totaling $ 809,000 in 1999, $279,000 in 1998, $341,000 in 1997. At December
31, 1999, the Company was owed approximately $ 255,000 on rental revenues
earned in 1999. At December 31, 1998, the Company was owed approximately
$60,000 on rental revenues earned in 1998. At December 31, 1997, the Company
was owed approximately $135,000 on rental revenues earned in 1997.

         The Company leases the use of an airplane from an employee. As of
December 31, 1999, the Company had paid approximately $16,000 under this
arrangement.

         The Company paid its former Chairman of the Board $30,000 in total
consulting fees through June 30, 1999.

         On February 8, 2000, the Company sold a 50% undivided interest in the
Will-O-Mills gas treating plant for cash proceeds of $2,000,000 to an
affiliate of HACL, LTD.

NOTE 11  COMMITMENTS

         The Company leases compressor equipment under contracts with terms
ranging from month-to-month to six years. The future revenues to be received
under contracts at December 31, 1999, are $5,357,000, $2,439,000, $950,000,
$679,000 and $7,000 in 2000, 2001, 2002, 2003 and 2004, respectively.


                                     43

<PAGE>

         The Company leases facilities for its corporate and field offices
with lease terms ranging from month-to-month to three years. The Company has
certain other operating leases for other facilities, office equipment and
automobiles. Future minimum rental payments under these leases total $216,569
and $133,532 for 2000 and 2001, respectively. The Company's rental expenses
were $ 389,000 ,$382,000, and $467,000 in 1999, 1998, and 1997, respectively.

NOTE 12                   INDUSTRY SEGMENT INFORMATION
                         OPERATIONS BY INDUSTRY SEGMENT

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                                       -----------------------
                                                   1999         1998           1997
                                                   ----         ----           ----
                                                           (IN THOUSANDS)
<S>                                               <C>          <C>            <C>
COMPRESSOR AND GAS TREATING OPERATIONS:
     Net revenues                                 $23,758      $23,833        $13,342

     Operating income (loss)                        4,192        3,938(1)        (501)

     Identifiable assets (Note 5)                 113,437       99,635         77,985

     Capital expenditures                          11,835       21,056         11,788

     Depreciation and amortization                 $6,017       $5,370         $3,278

OIL AND GAS:(2)
     Net revenues                                  $1,399       $2,409         $2,685

     Operating income                                 464          773          1,212

     Identifiable assets                                0       41,246         39,455

     Capital expenditures                             108        2,241            877

     Depreciation, depletion and amortization        $329         $600           $409

</TABLE>

(1)      Includes a provision to reduce the carrying value of other equipment
         of $162,000 and a charge-off of the Company's unamortized original
         organizational costs of $112,000.

(2)      Oil and gas properties were sold July 2, 1999, with an effective date
         of June 30, 1999.


NOTE 13  SUBSEQUENT EVENTS

         On January 4, 2000, the Company announced that the previously
announced merger negotiations with Energy Transfer Company had been
terminated. Further, the Company's Board of Directors had authorized certain
board members to interview and engage an investment banker to explore
strategic alternatives and steps to maximize shareholder value. The Company
formally engaged a major investment bank in February 2000, for this purpose.
All strategic alternatives are being explored including the possible sale of
the Company.

         On February 8, 2000, the Company sold a 50% undivided interest in the
Will-O-Mills gas treating plant for cash proceeds of $2,000,000 to an
affiliate. The Company expects to report a gain on the sale for the first
quarter of 2000.



                                     44

<PAGE>

NOTE 14  OIL AND GAS INFORMATION (UNAUDITED AS TO RESERVE INFORMATION)

         The Company sold all of its oil and gas producing properties on July 2,
1999 with the sale of its interest in Sunterra L.L.C.

         Capitalized costs for the years ended and costs incurred during the
years ended were as follows:

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                    ------------
                                                                          1998                      1997
                                                                        -------                   -------
                                                                                  (IN THOUSANDS)
<S>                                                                     <C>                       <C>
Capitalized costs:
   Proved properties                                                    $39,401                   $37,374
   Unproved properties                                                      --                         --
                                                                        -------                   -------
Total                                                                    39,401                    37,374

Less:
   Accumulated depreciation, depletion and
      amortization and provision to reduce carrying value                32,568                    31,824
                                                                        -------                   -------
         Net capitalized costs                                          $ 6,833                   $ 5,550
                                                                        =======                   =======

Costs incurred:
   Proved properties                                                    $ 2,026                   $    --
   Development                                                              582                       877
                                                                        -------                   -------

Total costs incurred                                                    $ 2,608                   $   877
                                                                        =======                   =======

Results of operations for producing activities were as follows:           1998                      1997
                                                                        -------                   -------

Revenues                                                                $  2,409                  $ 2,685
Production costs                                                           (728)                     (804)
Depreciation, depletion and amortization                                   (600)                     (409)
Income taxes                                                               (411)                     (538)
                                                                        -------                   -------

Results of operations for producing activities
    activities (excluding overhead and financing costs)                 $   670                   $   934
                                                                        =======                   =======

<CAPTION>
                                                                   1998                    1997
                                                                   ----                    ----
                                                              OIL        GAS         OIL           GAS
                                                              BBLS       MCF         BBLS          MCF
                                                              ----      ------       ----         -----
<S>                                                           <C>       <C>          <C>          <C>
Proved Reserves:
   Beginning of year                                           603       9,425        930         4,989
   Revision of estimates                                      (164)      1,106       (321)        1,337
   Extension and discoveries                                    --         268         --         1,015
   Purchase of reserves                                         38       2,971         46         2,716
   Sales of reserves                                          (290)        (36)        --            --
   Production                                                  (24)     (1,014)       (52)         (632)
                                                              ----      ------        ---         -----
   End of Year                                                 163      12,720        603         9,425
                                                              ====      ======        ===         =====
Proved Developed Reserves                                      163      12,720        603         9,245
                                                              ====      ======        ===         =====
</TABLE>

         All of the Company's reserves were attributable to Sunterra L.L.C. for
which there was an approximate 18% minority interest.

         Proved reserves are those quantities which, upon analysis of geological
and engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under existing economic and operating
conditions. Proved developed reserves are those reserves which can be expected
to be recovered through existing wells with existing equipment and operating
methods.

                                      45
<PAGE>

         Oil and gas reserves cannot be measured exactly. Estimates of oil and
gas reserves require extensive judgments of reservoir engineering data and are
generally less precise than other estimates made in connection with financial
disclosures.

         Assigning monetary values to such estimates does not reduce the
subjectivity and changing nature of such reserve estimates. Indeed the
uncertainties inherent in the disclosure are compounded by applying additional
estimates of the rates and timing of production and the costs that will be
incurred in developing and producing the reserves. The information set forth
herein is therefore subjective and, since judgments are involved, may not be
comparable to estimates submitted by other oil and gas producers. In addition,
since prices and costs do not remain static and no price or cost escalation's or
de-escalation's have been considered, the results are not necessarily indicative
of the estimated fair market value of estimated proved reserves nor of estimated
future cash flows.

            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

         The standardized measure of discounted future net cash flows ("SMOG")
was calculated using year-end prices and costs, and year-end statutory tax
rates, adjusted for permanent differences, that relate to existing proved oil
and gas reserves. Future net cash flows are as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                             ------------
                                                        1998             1997
                                                      --------         --------
                                                            (IN THOUSANDS)
<S>                                                   <C>              <C>
Future cash flows                                     $ 26,895         $ 29,730
Production costs                                       (11,780)         (11,849)
Development costs                                         (147)              --
Income tax expense                                      (4,434)          (6,790)
                                                      --------         --------
Future net cash flows                                   10,534           11,091
10% discount factor                                     (4,111)          (4,232)
                                                      --------         --------
Standardized measure of discounted
   future net cash flows                              $  6,423         $  6,859
                                                      ========         ========
</TABLE>

         The following table summarizes the principal factors comprising the
changes in the standardized measure of discounted future net cash flows.

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                            ------------
                                                        1998             1997
                                                      --------         --------
                                                           (IN THOUSANDS)
<S>                                                   <C>              <C>
Standardized measure, beginning of year               $  6,859         $10,238
Sales of oil and gas net of production costs            (1,620)         (1,822)
Net changes in prices and production costs              (2,362)         (4,311)
Extensions and discoveries less related costs              180             687
Purchase of reserves                                     2,081           1,290
Sale of reserves                                        (1,035)             --
Revisions of previous estimates                            218            (707)
Accretion of discount                                      602             885
Change in income tax expense                             1,500             599
                                                      --------         --------
Standardized measure, end of year                     $  6,423         $ 6,859
                                                      ========         =======
</TABLE>

All of the Company's reserves and standardized measure of discounted future net
cash flows are attributable to Sunterra L.L.C., for which there was an
approximate 18% minority interest.

         The Company's reserves were determined at December 31, 1998 using
constant prices of approximately $9.51 per Bbl of oil and $1.99 per Mcf of gas.

                                      46
<PAGE>

NOTE 15                     OEC COMPRESSION CORPORATION
                   SELECTED QUARTERLY UNAUDITED FINANCIAL DATA




The table below sets forth selected unaudited financial information for each
quarter of the last two years:

<TABLE>
<CAPTION>
                                              FIRST QUARTER      SECOND QUARTER     THIRD QUARTER     FOURTH QUARTER
<S>                                           <C>                <C>                <C>               <C>
1999
     Revenue                                     $  6,804           $  6,429           $  5,901          $   6,023
     Gross Profit                                   1,307              1,047                998              1,304
     Net Income                                        18               (175)               373                (94)
     Earnings per common share:
          Basic                                       .00               (.01)               .01                .00
          Dilutive                                    .00               (.01)               .01                .00

1998
     Revenue                                        6,133              6,560              6,499              7,050
     Gross Profit                                   1,441              1,587              1,223                460
     Net Income                                       227                351                  4               (570)
     Earnings per common share:
          Basic                                       .01                .01                .00               (.02)
          Dilutive                               $    .01           $    .01            $   .00          $    (.02)
</TABLE>




                                      47
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT
  NO.      DESCRIPTION
-------    -----------
<S>        <C>
 3.3*      Amended and Restated Bylaws ..............................

21.1*      Subsidiaries of the Registrant............................

23.1*      Consent of Independent Public Accountants.................

27*        Financial Data Schedule...................................


*Previously filed.

</TABLE>




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